Once you determine a sustainable annual withdrawal rate, you can generally use one of these two basic methods to withdraw money:
Dollar-adjusted withdrawals involve taking out an initial base amount and adjusting it annually for inflation. This method:
Provides a consistent, inflation-adjusted cash flow.
May deplete your savings too quickly if the markets experience a downturn.
Percentage withdrawals involve withdrawing a certain percentage of your portfolio's value each year. This method:
Provides annual withdrawal amounts that fluctuate depending on your account balance, so you may have to adjust your spending if your balance drops because of a market downturn.
Increases the likelihood that your savings will last throughout your retirement.
The chart illustrates the different effects of these two withdrawal methods on a $500,000 retirement account over five years. As you can see, dollar-adjusted withdrawals increase steadily, while percentage withdrawals fluctuate but leave $20,041 more in the account after five years.
Compare Dollar-Adjusted Withdrawals With Percentage Withdrawals
In this example, withdrawals are taken at the beginning of each year.
This hypothetical example is for illustrative purposes only and does not represent any actual products or investments.