Select a withdrawal method
Generally, Vanguard recommends that, once you are retired, you withdraw 3% to 4% annually from your savings.
The good news: You probably will never deplete your savings using this method.
The bad news: The dollar amount of your annual withdrawals and your spending ability can vary.
Here’s an example: If your savings are $100,000, you would withdraw $4,000 the first year. The next year you might have $110,000 because the stock market has risen. You could withdraw $4,400.
Then, hypothetically, in year three of your retirement, the market declines. As a result, your savings are down to $90,000. You could only withdraw $3,600 and have to cut back on your expenditures.
Another withdrawal option
You could choose to adjust your withdrawals to inflation. The first year you withdraw $4,000. If inflation has been running at, say, 3%, you would withdraw $4,120 the next year.
The good news: Under this method your income and your spending power increase at a predictable rate.
The bad news: Your assets could deplete too fast if the market were to turn down during the first few years of your retirement. Why? By withdrawing enough annually to adjust for inflation, you would be dipping deeper and deeper into a shrinking pool of money.
Avoid penalties and mistakes
One more point: Whatever withdrawal method you choose, you should also try to avoid costly penalties and mistakes that could cut into your savings. We can show you how.
Investments are subject to market risk.
Make your savings last