4% rule:
Withdraw 4% of your account balance initially and adjust that dollar amount for inflation annually. (Given low-interest rates these days, it is questionable if this rate is even sustainable.)
Fixed percentage:
Withdraw the same rate annually based on prior year-end values.
Fixed-dollar amount:
Withdraw a set dollar amount every month or year.
Systematic withdrawals:
Withdraw only interest and dividend income leaving principal intact.
Bucket plan:
Hold some assets in cash equivalents, some in fixed-income, and some in equities filling the cash bucket when low from the fixed-income bucket or the equities bucket, depending on which is appropriate.
These methods are vulnerable to factors including market volatility, low-interest rates, inadequate savings and investments in place. Then there’s the possibility of retiring too early, living too long, risk-tolerance mismatch, inflation risks, unknown tax consequences and out-of-pocket health care costs.
So, how to develop an optimized distribution strategy in retirement?
Focus on the amount of income needed in golden years is the way to go. See next blogpost for more details.