Developing a Withdrawal Rate and Spending Plan
Only hindsight will show if your withdrawal rate is correct, but Christine Benz says these flexible guidelines are a good place to start.
Christine Benz: Hi, I'm Christine Benz for Morningstar.com.
One of the most important financial-planning jobs for retirees and pre-retirees is developing a sustainable withdrawal rate system. Unfortunately, the correct withdrawal rate will be only apparent in hindsight, so this is more art than science. However, many financial planners believe that a 4% starting withdrawal, with that dollar amount inflation-adjusted as the years go by, is a reasonable place to start. You can then adjust your withdrawals up or down based on your asset allocation and your time horizon.