Withdrawal Strategies: How to Spend Your Retirement Savings
Saving for retirement is half the battle — drawing down without running out is the other half.
The 4% rule, briefly
A widely cited starting point: in year one of retirement, withdraw 4% of your portfolio; adjust annually for inflation. Historical data suggests this gives most retirees a high probability of not running out over 30 years. It's a rule of thumb, not a guarantee.
Sequence of returns risk
The biggest threat is poor market returns in the first few years of retirement. A 30% drop while you're withdrawing 4% leaves a deep hole that's hard to recover from. Holding 1–3 years of expenses in cash and bonds buffers against this.
The bucket strategy
Divide retirement assets into three buckets: 1–2 years of spending in cash, 3–7 years in bonds, the rest in stocks. Spend from cash, refill from bonds, refill bonds from stocks during good years. This isolates day-to-day spending from market drama.
Tax-efficient withdrawal order
A common framework: spend from taxable accounts first (lower tax cost), then traditional retirement accounts, then Roth last. This maximises tax-free growth. Real situations may justify variations.
Social Security timing
Delaying Social Security past full retirement age increases the benefit roughly 8% per year up to age 70. For people in good health and with other resources to bridge the gap, delaying often produces the most lifetime income.
Annuitisation for income certainty
A simple immediate annuity can convert part of a portfolio into guaranteed lifetime income, removing the math from a portion of spending. Useful for covering essential expenses, though not appropriate for the entire portfolio.
Frequently asked questions
Is 4% safe today?
Most research suggests 3.5–4.5% is reasonable depending on conditions. Modest flexibility year-to-year matters more than precision.
What about healthcare costs?
Plan for substantial healthcare costs separately, especially before Medicare eligibility at 65.
How often should I update the plan?
Review withdrawal rates annually and adjust based on portfolio performance and spending changes.