3 Popular Retirement Withdrawal Strategies: An Expert Review

The retirement withdrawal strategy that’s perfect for your neighbor may not work for you. That said, your plan for retirement must start somewhere. Popular, time-tested retirement withdrawal strategies can help to steer you in the right direction.

To be totally clear, no prefabricated retirement withdrawal strategy is enough to keep you funded for life. The most effective retirement plan is personal, unique, and tailored just for your particular circumstances.

So don’t expect these strategies to perform reliably in every situation. And if you’re looking for retirement expertise, any of our team members would be happy to help you develop a personalized strategy. Now, on with the review!

1. The 4% Rule

This rule of thumb holds that you can safely withdraw 4% of your portfolio every year without going broke. But there are some important conditions attached to this guideline:

  • You need a balanced mix of stocks and bonds.
  • The actual withdrawal percentage rate should be adjusted for inflation annually. That makes the 4% rule only good for your first year of retirement, which limits its usefulness.
  • The rule assumes a 30-year retirement horizon.

The 4% rule, invented by a financial adviser named William Bengen, was derived from  data-backed calculations. But Bengen also figured it out in 1994. Do the numbers still back it up?

Every year, it seems, the answer changes. In 2006, Bengen himself changed his maximum safe withdrawal rate to 4.5%. In 2020, he updated it to 5%. In 2023, finance personality Suze Orman clawed it back to 3%.

Later that year, Morningstar released a report that said the old 4% withdrawal rate produced a 90% chance of preserving your accounts for 30 years. The 4% rule was back! But for how long?

Our Take On The 4% Rule

The lesson of all these changing percentages is that there are no absolutes in retirement planning. Instead, look for a personalized retirement withdrawal plan—and one that’s flexible enough to sway with the market.

2. Protecting Your Principal

Many investors say they don’t want to “dip into their principal.” They only want to trade and withdraw money they’ve earned from their investments.

Admittedly, this idea makes sense at first glance. If you leave your principal investments intact, you’ll have a permanent source of passive income, right?

Sort of, but that’s not the point. This strategy misunderstands the true goal of retirement funds. You don’t want to guarantee an unchanging income. You want to preserve your purchasing power over time. These are fundamentally different ideas, and they lead to very different retirement withdrawal strategies.

Say you have a $2 million portfolio, and you’re living comfortably on $40,000 per year. A principal-protection strategy says you can just plunk your $2 million into accounts that pay 2% and coast the rest of the way.

The wrench in this particular set of gears is called inflation. That $40,000 may be enough for today, but the same lifestyle could cost $50,000 or $80,000 in a few years. That’s why it’s better to plan in terms of purchasing power than hard dollar amounts—and you might need to risk some principal to maintain purchasing power.

Our Take On Protecting Your Principal

Protecting your principal at all costs is the wrong strategy. You can’t just preserve your assets; you have to grow them at the same time you are consuming them, and do that over many years. Otherwise, you’ll never keep up with inflation. Luckily, there’s a good strategy that does account for this reality. 

3. The Bucket Strategy

The bucket strategy is less precise than the 4% rule, but it’s also a more useful framework for withdrawing retirement funds.

The idea is to divide your investments into three “buckets”:

  1. A short-term bucket, which provides immediate cash to live on. This includes your checking and savings accounts, which are refilled by the mid-term bucket.
  2. A mid-term bucket, which grows slowly but reliably. This usually consists of fixed income and bonds. It is refilled by the long-term bucket.
  3. A long-term bucket, or “growth” bucket. This is made up of stocks, which fluctuate in the short term but typically grow over time. It is refilled by trading gains.

Our Take On The Bucket Strategy

This plan is a great retirement withdrawal strategy, even if it is short on details. This framework always honors your immediate cash needs, which contributes to a happier retirement.

Of course, to set up such a strategy, you must have a clear sense of what your cash needs are going to be over the next one to five years. That brings us right back to the need for a personalized retirement withdrawal strategy.

Build A Retirement Withdrawal Strategy That Works For You

The experts at Curio Wealth can help you make a retirement withdrawal plan that honors your cash needs while preserving purchasing power for the rest of your life. We’re SEC-registered fiduciaries, which means we’re legally required to protect your financial interests. We’re also CERTIFIED FINANCIAL PLANNER™ professionals, bound to uphold the CERTIFIED FINANCIAL PLANNER™ Board’s code of ethics and practice.

In other words, you can trust us to help you find the right way to retire. That includes a retirement withdrawal strategy that goes beyond the basics. Schedule a call to start the conversation.

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