Withdrawing Money in Retirement

You’ve made it to retirement. Now what?

You worked hard, and if you’ve saved well, now you’re ready to retire. Congratulations!!!

Your question might be, how much money can you safely withdraw during retirement and not run out of money? 

There are a few things to consider. First, how old will you be when you start withdrawing, and how long do you think you’ll need the income?  While we don’t really know how long we will live, we do know that generally speaking, people are living longer. So you could live into your 90s or beyond, and you don’t want to outlive your money. 

Another consideration is how you choose to invest your money in retirement? Often as we get to retirement, we don’t want the market to cause our accounts to have significant fluctuations, so some choose to move their investments to portfolios that may have a little more stability. Meaning, for example, they may adjust their portfolio from a growth mix of 70% or more equities to a portfolio with only 30-50% equities, with the rest in fixed income funds or stable value choices. If this is the case, you will likely have less growth than you did prior to retirement. This could result in spending more principal each year and not just spending the interest or growth on the account. Whatever portfolio blend you are comfortable with is okay; just keep in mind your expected growth rate and your spend-down rate.  While no one can accurately predict the future performance of their portfolio, you can control how much of the account you spend each year.  

For years economists and advisors have based their spend-down recommendations on a study done by William Bengen in 1994, which suggests that if you want your portfolio to last, you may want to start your spend-down at a rate of only 4% and adjust that rate for inflation annually. Bengen’s study looked at market fluctuations and a variety of portfolio types and found that a 4% withdrawal rate affords many individuals the ability to have the use of their accounts for 30 years or more.  In fact, with market history, many scenarios had accounts that could last even longer.  Since Bengen’s study, there have been articles published by other advisors and Bengen himself saying the 4% rule shouldn’t be followed too strictly.  Some say you should spend down less, such as only 3.5%, and some say you can spend more.  Vestwell isn’t recommending or suggesting what is right for you; however, we want to offer educational information so you can make informed decisions. You should consult with a financial professional and discuss your specific circumstance. 

The sad reality is that some people retire, spend too much, and run out of money, too soon! Consider this; if you couldn’t afford the big house, a significant home renovation, or a big camper before you retired, you probably won’t suddenly afford them just because you retired and because you want them. So budgeting in retirement is essential; think of your needs, all the years you will live, and how much money you will receive from fixed sources such as Social Security.  Then how much more will you need to withdraw from your retirement account to make up for what Social Security doesn’t provide. 

Let’s say you need $50,000 a year to maintain your lifestyle; if you receive $20,000 a year from Social Security, you will probably need to get the rest from your nest egg. Is your nest egg large enough? If it isn’t, should you delay retirement so that your Social Security benefit is more significant and so that you have more time to accumulate your retirement savings? 

Let’s take a look at the illustration below.  This hypothetical illustration shows an account with a starting balance of $500,000, a steady growth rate of 4%, and inflation-adjusted withdrawals. Each line on the graph represents a different spend-down rate, gold represents an 8% withdrawal rate, blue represents a 6% withdrawal rate, and orange represents a 4% withdrawal rate.  Based on an account starting value of $500,000, the first-year withdrawal would be $40,000 for the 8% withdrawal rate, $30,000 for the 6% withdrawal rate, and $20,000 for the 4% withdrawal rate. Each year your withdrawal amount would increase fractionally as you adjust for inflation, plus after age 72, your RMD may eventually require you to start taking more each year. (Read more about RMDs here) As you can see, starting with a withdrawal rate of 4% does indeed illustrate a better chance of having money through your retirement years and less risk of outliving your nest egg.


Throughout your working years and through retirement, consulting with a financial professional can be helpful.  A little planning can help avoid troubles down the road.  

We hope you found this article helpful. If you have any questions, please contact us at help@vestwell.com

Please note: Vestwell is not an investment, legal, or tax advisor to any individual and we do not provide that advice. This article is provided for educational purposes only. You should consult a qualified financial professional to review and assist you with any of your investment or retirement needs.