The first two options are quite well known, so we will briefly analyze their trade-offs in this blog post.
First, the 4% withdrawal option.
While this rule of thumb sounds simple to follow, unfortunately it doesn't respond well to the actual asset performances. For example, if the portfolio sinks in a few bad years, withdrawing 4% out of it won't be enough, so you will have to take more out of the assets, the risk of running out of money will be very high.
Now, for the use the dividends and interests only option.
This option basically scarifies the retiree's life by trying to leave a large sum to the heirs. But the need for income will influence the asset allocation and could lead to not optimal results, for example, the portfolio could be concentrated in a few high risk bank stocks.
Recent academic studies more favor the third option - applying the RMD rule to retirement assets.
We will discuss it in the RMD-based spend post.