Your Guide to Retirement Withdrawals

When you’re nearing retirement, you may want to estimate how much of your savings to withdraw each year so you give your money greater potential to last your lifetime. As a rule, plan to take out 4% annually. A financial advisor can help you determine whether that’s the right amount for you.

By Jeanne Lee

As you get close to retirement, you’ll want to estimate the answer to one important question: How much of my savings should I withdraw each year so I won’t outlive my money?
How much of my savings should I withdraw each year so I won’t outlive my money?
The 4% rule
The traditional rule of thumb: Plan to withdraw 4% of your savings in the first year (or somewhat less) and then in subsequent years, withdraw the previous year’s amount plus an adjustment to cover inflation. Keep the rest of your savings invested and diversified.

That 4% rule is a very good starting place if you have a diversified portfolio of stocks and bonds.

But to come up with your own withdrawal percentage, you’ll want to factor in how your money is invested and how many years you want the money to last, which might lead you to raise or lower the 4% figure.

Once you’re retired, you may also need to adjust how much you withdraw depending on how the stock market has performed.

If your investments went up a lot, you may have enough in savings to withdraw more than 4% a year, according to research by William F. Sharpe, a Nobel laureate and an emeritus professor of finance at Stanford University’s business school. But if your investments hit a rough patch and your savings have shrunk, you may need to take out less than 4% — at least until the markets recover.
The bucket strategy
After the dismal market performance of 2008, some financial advisors now suggest a new approach to retirement withdrawals: Divide your retirement savings into “buckets” of income for different periods of your retirement.

Here’s how the bucket approach works:
  1. Start with your withdrawal amount for your first year of retirement, say 4% of your portfolio.
  2. To help safeguard your income for your first seven years of retirement, multiply your initial amount by seven and add an annual adjustment for inflation.
  3. Then, take that amount of money and invest it in Treasury bills, a money market account, or perhaps a CD ladder (a series of bank certificates of deposit with increasingly longer maturities). That bucket should provide you with income to live on for seven years.


Each year, or when your bucket starts to run low, you refill the bucket with enough safe investments to live on for the next period.

Here’s an example:

  • If you had a $1.5 million portfolio and wanted to withdraw $60,000 a year, you might put $420,000 (plus an adjustment for inflation) in safer investments, such as Treasury bills.
  • For the income you’ll need in eight to 15 years, you’d invest a portion of your current portfolio into a balanced mix of stocks and bonds.
  • The rest of the money, for the long-term, might go into a more aggressive investment portfolio.

Meet with a financial advisor
Before you retire and start withdrawing any savings, meet with a financial advisor to discuss the best strategy for your situation. The two of you should estimate the annual amount you expect to spend in retirement, the guaranteed income you’ll receive (such as pensions or annuities), and the amount you’re likely to have in savings. Then meet periodically to see whether you should take out more or less money than you had planned.

A Wells Fargo Advisor can also introduce you to the Envision process — a unique opportunity to see where you are now and to create an investment plan that is flexible enough to adapt to whatever life throws your way.

Key Points:

  • Determine a withdrawal rate that is suitable for your specific situation.
  • The exact amount you should withdraw will depend on how your money is invested, how many years you want to receive the income and how the stock market performs while you’re retired.
  • A financial advisor can help you determine how much of your savings to withdraw each year in retirement.
Jeanne Lee is a business journalist whose work has appeared in Financial Planning, Fortune, Money, and on CBS MoneyWatch.com.

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