Retirees’ withdrawal syndrome: How much to live on

Avoiding the nightmare financial scenario in retirement - running out of money - is getting trickier.

Rising life expectancy means having to pay for a longer retirement. The lack of a pension or frozen benefits translate to fewer, smaller checks from ex-employers. And the days of being able to count on averaging 10 percent annual returns from the stock market are over.

All that makes it even more important for retirees to know just how much they can take out of their portfolios every year without drawing them down too fast.


The classic guideline long followed by many, and still respected, is widely known as the 4 percent rule. It holds that if you withdraw no more than 4 percent from your savings the first year of retirement and adjust the amount upward for inflation every year, you can be confident you won’t run out of money during a 30-year retirement.

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The strategy is credited to financial planner William Bengen, who published his research in the Journal of Financial Planning in 1994. But Bengen says the number is actually 4.5 percent.

Bengen spoke about his rule and the proper approach to withdrawals in a recent interview.

How did the rule come about?

I started getting clients who were thinking seriously about retirement. They asked me, ‘How much can I take out of my portfolio when I retire?’ I really hadn’t a clue.


So I started looking and I found no substantial information anywhere.

I looked at data on investments and inflation going back to 1926 and reconstructed the investment experience of retirees over the decades.

What has changed, if anything, since you did your research?

Not much. I still think the rule is valid, although we’re in a period of time which may challenge it.

What about the outlook for those retiring now?


If you’re retiring today, you probably can’t expect much more than 5 percent a year over the next five to seven years. That’s a pretty bad start to your retirement. Bonds also don’t look very good.

People retiring today have to be very careful. They may be better off not retiring for a couple of years. The greatest asset you have in an environment like this is a good-paying job so you’re not dependent on the stock market or the bond market to support you.

Do you have any other financial advice for retirees?

Be conservative in both your living expenses and your investments.

It’s also a good time to actively manage your portfolio. Buy and hold in this environment probably is counterproductive. It worked in the ’80s and ’90s and I think it’ll work again someday, but not in this environment, where there are so many risks and threats to capital.

Dave Carpenter writes for the Associated Press.