After spending most of your life saving for retirement, you’ll find yourself finally using your portfolio. But the move could be a scary one. What if you run out of money? What if you spend too much or too little?
The answers ultimately depend on how much you’ve saved and your specific lifestyle and spending habits. But experts do have some go-to rules. So let’s take a look.
4 Percent Rule
This rule suggests you withdraw 4 percent of your portfolio during the first year in retirement. Then, you withdraw 4 percent plus the rate of inflation in the next years. It’s a rather simple strategy. But it can put your portfolio in threat during down markets. However, many experts claim this strategy can help stretch your portfolio for at least 30 years. This is why experts recommend you take inflation and market conditions into account when exercising this rule.Fixed-Dollar Withdrawal Strategy
This strategy involves withdrawing a fixed amount of money each year in retirement. So it is similar to the 4 percent rule, but may be riskier because it doesn’t adjust to inflation. It’s best for people who expect to spend a relatively fixed amount each year in retirement without needing any more. But it is also highly impacted by market conditions—and you could run out of money in down markets.Withdrawal ‘Buckets’
The withdrawal “buckets” strategy comes into play. This strategy divides your retirement savings into three buckets: short term, intermediate term, and long term.The short-term bucket would contain money you would need in the first three to five years of retirement. It should be invested in relatively safe assets like cash and short-term bonds.
The intermediate-term bucket would contain savings you’d use in the next five to 10 years. It should be invested in investment-grade bonds and certain stocks like utilities and consumer staples, as well as real estate investment trusts (REITs).
The long-term bucket would contain funds to grow throughout your retirement. So you may consider stocks and long-term bonds.
Tax-Based Withdrawals
This strategy takes into account the types of retirement accounts you have. The goal is to minimize taxes on withdrawals. So, in years when you’re in a particularly high tax bracket, you may want to withdraw from a tax-free account like a Roth IRA or Roth 401(k).Withdraw Earnings, Not Principal
If you have a sizable principal, you can let it grow and instead rely on interest and dividends during the early years of retirement. But it is also highly reliant on market conditions. And your money could take sharp fluctuations during volatile markets.RMD Distributions
Required minimum distributions (RMD) are certain amounts you must withdraw from traditional individual retirement accounts (IRAs) and 401(k)s each year after reaching age 73. The age rises to 75 for those who turn 74 after 2032. It’s based on the IRS life expectancy tables. Withdrawing the RMD at least each year could steer you away from high tax penalties.The Bottom Line
The right amount to withdraw from your nest eggs throughout your retirement would be different for everyone. You need to take into account the size of your nest egg, financial needs, lifestyle, inflation, and market conditions. It may also help to discuss withdrawal strategies with a qualified financial adviser.The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
