This article is part of the Retirement Financial Life Equation (RFLE) series. It was initially published in July 2023 and updated in December 2025.
In a recent article, I discussed retirement spending and whether our costs go down as we age. In this article and the next, we’ll look at the other side of the equation: generating income, specifically the different ways to withdraw from savings to fund your spending, hopefully for as long as you live.
This is part of wise retirement stewardship—managing the resources God has entrusted to us to care for ourselves and our families, and, if possible, maintaining a surplus for generous giving. It’s not about achieving absolute safety and security by devising a failsafe plan; there’s no such thing. We do what we can while placing our ultimate faith and hope in God’s providential care and provision for us.
There are two big questions to answer when planning for retirement: First, how much is enough? And second, once you have “enough,” how can you generate sufficient income to live on while ensuring you don’t run out of money prematurely? Question number one is about accumulation, and question number two is about decumulation.
Both are challenging but closely related questions. How much is enough depends significantly on how much you’ll spend and how quickly you’ll spend it. This article focuses primarily on question number two—and it’s a crucial question for those who need to rely on their retirement savings for a portion of their income for as long as they live.
Strategies and more strategies
Most retirees will need some income-generating strategy, especially those with relatively small portfolios. Even if it’s “spend what I want until it’s gone and then hope for the best” (a fun approach while it lasts), everyone ends up with some plan, whether intentional or default. And some plans are far better suited to your situation than others.
However, the sheer volume of funding strategies available to someone planning retirement can be overwhelming. There are systematic withdrawal rates, floor-and-upside approaches, bucket strategies, dividend strategies, cash reserve strategies, guardrail systems, and then there’s the strategy economists love, and consumers often hate: purchasing life income annuities.
No one says you must limit yourself to a single strategy. You can combine these and others to create a hybrid approach tailored to your specific financial situation, risk tolerance, and income needs.
Boiling them down
Without oversimplifying too much, most retirees’ strategies will include income from one or both of the following sources:
Withdrawals from a risk-based investment portfolio (stocks, bonds, and other market-sensitive assets)
Income from “guaranteed” sources such as pensions, Social Security benefits, immediate or deferred annuities, or whole life insurance cash values (some may also include reverse mortgages, though these come with significant trade-offs)
Assuming that the majority of retirees will have Social Security benefits and at least some amount of invested assets, the fundamental question becomes: “Will my ‘safe’ income sources (Social Security, pensions, annuities) combined with income from my ‘risk-based’ portfolio provide enough total income to support my spending needs for as long as I (and perhaps a spouse) live?”
The answer to this question hinges on two factors: how much guaranteed income you have to create a secure floor, and the long-term sustainability of your withdrawals from your investment portfolio. This article focuses on the latter—portfolio income withdrawals and the most popular strategies for managing them.
The most common approach is a “systematic withdrawal strategy,” which can be further broken down into two categories: fixed withdrawals as an annual percentage or a specific dollar amount (perhaps with yearly adjustments for inflation), and variable withdrawals based on year-to-year portfolio performance or other factors. Fixed strategies are more straightforward to implement but less responsive to changing conditions. Variable strategies are more complex but better protect against premature depletion.
We’ll examine fixed strategies in this article and explore variable approaches in the next.
Fixed withdrawal strategies
The fixed withdrawal approach means taking either a set dollar amount or a fixed percentage of your portfolio’s value, with the withdrawal amount adjusted annually for inflation to maintain purchasing power. It’s still considered “fixed” even though the dollar amount grows over time, because it remains constant in real (inflation-adjusted) terms. In other words, your spending power—what you can actually buy—remains steady even as the nominal dollar amount increases.
At the center of the fixed withdrawal strategy is the famous 4% “safe withdrawal rate,” first proposed by financial planner William P. Bengen in 1994 and later confirmed by the well-known “Trinity Study” published in 1998. The Trinity Study used historical market data to model thousands of potential retirement scenarios, showing approximately a 95-98% probability that you wouldn’t run out of money over a 30-year retirement if you started by withdrawing 4% of your initial portfolio value and adjusted that dollar amount annually for inflation.
To illustrate: If you own a $400,000 portfolio, you would withdraw $16,000 in year one (4% of $400,000). If inflation were 2.5% that year, you’d take out $16,400 in year two ($16,000 × 1.025). If inflation in year two were 3%, you’d withdraw $16,892 in year three ($16,400 × 1.03). You stay in this course irrespective of how your portfolio value fluctuates with market conditions.
Later studies based on similar assumptions produced comparable results, leading to the “4% rule” becoming institutionalized throughout the retirement-planning industry. It became shorthand for sustainable retirement spending—simple, memorable, and seemingly scientific.
Perhaps you can already see some potential problems with this strategy, especially the “irrespective of your portfolio value” part. Withdrawing an increasing dollar amount from depreciated assets will accelerate their depletion. As the old saying goes, “If you find yourself in a hole, stop digging.” Yet the strict 4% rule essentially tells you to keep digging regardless of how deep the hole has become.
Has the 4% rule changed?
Over the past two decades, during a period of historically low interest rates (particularly from 2010 to 2021), many retirement professionals understandably questioned whether the 4% rule remained valid. They concluded that setting a fixed withdrawal rate with an annual inflation adjustment and rigidly adhering to it for a full 30-year retirement was no longer realistic—if it ever truly was. Not to mention that no rule of thumb can account for all the real-world variables individual retirees must navigate: healthcare costs, tax changes, family emergencies, longevity, and more.
Some experts recommended lower initial portfolio withdrawal rates of 3% to 3.5% to achieve similar probabilities of success (typically defined as a 95% or greater chance of a portfolio lasting 30 years or more). There were also concerns that many retirees would not maintain at least 50% equity allocation throughout retirement, which was the stock/bond mix used in the original Trinity Study and Bengen’s research.
More recent studies, particularly since interest rates began rising in 2022-2023, have slightly raised these rates. For example, Morningstar’s 2024 report titled “The State of Retirement Income” concluded that with higher interest rates now available on bonds, a starting withdrawal rate of 3.9-4.0% appeared sustainable for a 30-year retirement with a traditional 50% stock/50% bond allocation.
Interestingly, recent research on asset allocation and safe withdrawal rates suggests that retirees can be somewhat more conservative with their equity allocation than initially thought, without necessarily reducing withdrawal rates proportionally. Morningstar’s research indicated that a retiree could reduce equity exposure from 50% to 30% and still maintain approximately the same starting withdrawal percentage, assuming they use other risk-management strategies, such as keeping cash reserves.
However, it’s important to note that “safe” withdrawal rates vary significantly based on several factors:
- Your time horizon (how long your retirement might last)
- Your equity allocation (how much stock vs. bonds you hold)
- Current market valuations and interest rate environment
- Your flexibility to adjust spending if needed
- Whether you want to leave a legacy or are comfortable spending down to zero
A reasonable current estimate for initial withdrawal rates ranges from 3.5% to 4.5%, depending on your total assets, risk tolerance regarding potential depletion, time horizon, and whether you’d like something left for heirs.
Here’s a simplified guideline based on recent research:
Conservative approach (maximize probability of success): 3.5% initial withdrawal rate with 40-50% stocks.
Moderate approach (balance sustainability and lifestyle): 4.0% initial withdrawal rate with 50-60% stocks.
Aggressive approach (higher initial income, higher risk): 4.5% initial withdrawal rate with 60-70% stocks.
Remember that these are starting rates. In practice, most successful retirees adjust these rates up or down based on actual portfolio performance and life circumstances.
The total return strategy
The most common investment approach associated with fixed withdrawal strategies is often called a “total return strategy.” This approach seeks a stock/bond allocation on the “efficient frontier”—that sweet spot that aligns with your risk tolerance while aiming for the highest possible portfolio return given your acceptable level of volatility (risk).
For many retirees, a stock allocation of around 40% to 50% is suitable for balancing growth potential with stability. Others prefer more conservative allocations of 30-40% stocks, particularly once they’re into their 70s and beyond. Those using the total return approach typically reinvest dividends and interest to contribute to portfolio growth, and regularly rebalance by selling appreciated assets (usually fund shares) to generate income and maintain their target allocation.
The advantages of this approach are significant. You (or your investment manager if you work with one) retain full control over your investment capital and asset allocation decisions. There’s genuine possibility that your investment results will be favorable enough not only to maintain your fixed withdrawals but perhaps to increase them in future years. You maintain liquidity—the ability to access larger amounts if needed for emergencies or opportunities. And you preserve the potential to leave assets to heirs or charity.
The risks
But of course, withdrawing from a risk-based investment portfolio carries inherent risks. Growth and income are unpredictable—sometimes dramatically so. We know how easy it is to lose money in stocks, even in supposedly “safer,” low-volatility funds. The 2020 COVID crash saw stocks fall 34% in just over a month. The 2022 inflation-driven decline took stocks down more than 25% while simultaneously driving bond values down significantly as interest rates spiked.
We also know that bonds, including government treasuries, once considered nearly risk-free, carry interest rate risk. When rates rise, bond values fall—as many of us learned painfully in 2022 when bond funds lost 10-15% or more in value. Bond prices may increase when rates decline, but yields (those necessary monthly interest payments) to investors decrease correspondingly.
The lower your savings relative to your spending needs, the less you can safely withdraw to increase the probability your portfolio will last. But smaller withdrawals mean less income, potentially forcing lifestyle compromises. Withdraw too much, or experience significant investment losses early in retirement (sequence-of-returns risk), and you risk running out of money decades before you die. Withdraw too little out of excessive caution, and you may unnecessarily restrict your lifestyle, your generosity, and your ability to enjoy the retirement years you’ve worked so hard to reach.
This tension between “too much” and “too little” is one of the most challenging aspects of retirement planning.
The honest answer is that you can’t know in advance what the “right” rate is for your specific retirement. You make the best decision you can with the information available, build in appropriate buffers and flexibility, and then adjust as you go. That’s not failure—that’s wisdom.
What I’ve learned is that starting with a reasonable withdrawal rate (for me, it was around 3.5% initially) and maintaining the discipline to reduce withdrawals when markets struggle is far more critical than hitting some theoretical “perfect” number.
Is this strategy right for you?
Fixed withdrawal strategies work best for certain types of retirees and situations. Let me describe who tends to be most successful with this approach.
Retirees with a substantial savings surplus—those whose portfolios are large relative to their spending needs—will be most comfortable with fixed withdrawal strategies. For these retirees, the likelihood of running out of money if they start with a relatively conservative withdrawal rate (3-4%) and experience even average annual returns is relatively low. They have enough margin to weather multiple market downturns without existential anxiety.
Those with adequate but not abundant savings who are comfortable with approximately a 5-10% probability of depleting their funds over a 30-year retirement might also choose this strategy, particularly if they’re willing to make adjustments during particularly poor market periods. This is actually where many retirees find themselves—enough to make it work, but not sufficient to ignore market conditions entirely.
Fixed withdrawal strategies appeal to those comfortable withdrawing from a diversified stock/bond portfolio who believe in the stock market’s historical ability to rebound over time and who remain relatively unfazed by significant short-term fluctuations in their account values. If seeing your portfolio decline by 20-30% in a year doesn’t cause you to panic and make poor decisions, you have the psychological temperament for this approach.
This strategy is particularly suitable for those who don’t require a guaranteed, consistent annual income or an absolute safety net that prevents any drop in spending. If you can reduce discretionary expenses during lean years without it being financially or psychologically devastating, fixed withdrawals can work well.
It may be ideal for individuals whose income floor is adequately covered by guaranteed sources such as Social Security retirement benefits, pensions, or annuities. If these sources cover your essential expenses (housing, food, healthcare, insurance), then portfolio withdrawals fund discretionary spending, giving you much more flexibility to adjust as needed.
Who should be cautious?
Conversely, fixed withdrawal strategies are less suitable for:
- Retirees with small portfolios relative to spending needs, who may deplete their savings quickly if they experience poor returns early in retirement
- Those who cannot tolerate volatility psychologically and might panic-sell during downturns
- Retirees who lack spending flexibility and truly cannot reduce expenses without severe hardship
- Those with minimal guaranteed income from Social Security or pensions are almost entirely dependent on portfolio withdrawals
- Individuals who need absolute certainty about income amounts and cannot adjust to variability
If you fall into any of these categories, variable withdrawal strategies (covered in my next article) or annuitization of at least a portion of your portfolio might be more appropriate.
But wait, there’s more
As we’ve seen, fixed withdrawal strategies are popular and certainly have an essential place in retirement planning. The 4% rule and its variations provide a practical starting framework for thinking about sustainable spending. But they’re not for everybody, especially those with smaller portfolios, higher spending needs, or lower tolerance for uncertainty.
My next article will examine variable withdrawal strategies—approaches that adjust spending based on portfolio performance, market conditions, or other factors. These strategies may make more sense for many retirees, particularly those who need more protection against sequence-of-returns risk or who want to optimize the balance between spending and preservation.
The bigger picture
Coming up with the right withdrawal plan is critically important to retirement success. But given all the uncertainties—future returns, inflation, life expectancy, health costs, tax law changes, and more—precision is at best elusive. We’re not shooting for mathematical certainty but relatively reasonable sustainability combined with appropriate flexibility.
So consider the options carefully, perhaps with help from a trusted advisor who specializes in retirement income planning. But also remember that your withdrawal plan isn’t set in stone. The best retirees I know review their strategies annually, remain willing to adjust when conditions warrant, and maintain both discipline (not overspending in good times) and flexibility (cutting back in difficult times).
And throughout it all, remember that we’re ultimately stewards, not owners. We do our best to plan wisely, we make reasonable decisions based on available information, but we place our ultimate trust in God’s provision rather than in our own strategies or the performance of our portfolios.
That perspective is what separates retirement stewardship from mere retirement planning. And it’s what enables us to navigate the inevitable uncertainties with peace rather than constant anxiety.