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.
Retirees with very long time horizons or conservative portfolios will want to withdraw less than 4% of their portfolios initially. Meanwhile, those with more aggressive portfolios and/or a time horizon that's shorter than 25 or 30 years, might reasonably take a higher withdrawal than 4% initially.
Market conditions are also in the mix. Retirement planning research suggests that if retirees can reduce their spending amid weak market conditions, that will greatly help their portfolios last over a long time horizon.
Thanks for watching; I'm Christine Benz for Morningstar.com.