Weekend Reading: Any Way You Want It

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

A common answer to, “How much can I take each year from my retirement portfolio without depleting it?” is the four percent rule. It suggests withdrawing four percent of your investment portfolio in the first year of retirement and adjusting for inflation in subsequent years.


However, there are certain complications associated with this rule-of-thumb approach, some of which include:

📌 Simplicity of the rule: While the rule is appreciated for its simplicity and ease of understanding, variations in lifespan and other income sources need to be factored in too.

📌 Sequence of returns and other variables: The impact of sequence of returns and other unpredictable aspects like health care costs could require a more flexible withdrawal strategy that the four percent rule doesn’t offer.

📌 Legacy and leaving options open: The rule doesn’t account for leaving a legacy, nor the option for changing wealth transfer preferences over time.

Alternative income models: As past podcast guest Wade Pfau has always advocated, there are numerous ways to secure a sustainable retirement income. Some alternative income models explored here include annuitization, maintaining income reserves, creating bond ladders and implementing a bucket strategy. Each model has its pros and cons, but the best choice depends on your individual circumstances.

You have numerous options for creating the right income strategy for you, but if you’re simply taking withdrawals from your investment portfolio, you don’t have a strategy. You're just hoping it works out.