Avoid running out of money in retirement

Periodically adjust your withdrawal rate
Periodically adjust your withdrawal rate © Phil McDonald/

Once you set up a certain withdrawal rate, the conventional retirement approach is to stick to it throughout retirement, over a period of time that could be as long as 35 years.

David Blanchett, head of retirement research with Morningstar, the Chicago investment research firm, says, "The two unknown variables when it comes to building an income strategy are how long you are going to live, and what the market returns are. If you knew both of these variables with absolute certainty, you could know exactly the amount you could take from your portfolio."

He says that retirees would be better off readjusting their withdrawal rate periodically in a dynamic manner, rather than sticking to a specific withdrawal rate.

The way to do this is to reassess your withdrawal rate at some defined interval, typically once a year, based on factors such as how long you expect to live, your current spending and plans for future spending.

These three triggers should motivate you to reassess your withdrawal rate: if the market drops, if you change the allocation in your portfolio, or if you have a life event that changes your expectations on retirement.


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