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How to avoid going broke in retirement

Retirement » Avoid running out of money in retirement

Set upper and lower limits for withdrawals
Set upper and lower limits for withdrawals © Chuchawan/Shutterstock.com

Set upper and lower limits for withdrawals

Mutual-fund giant Vanguard's dynamic approach to portfolio withdrawals is based on a combination of 2 tactics:

  1. Starting off with a specific dollar-amount withdrawal and adjusting it for inflation each year.
  2. Withdrawing a specific percentage of your portfolio annually.

In what Vanguard calls a "ceiling and floor" approach, the fund company says you could withdraw a specific percentage of your portfolio each year, setting upper limits (or a ceiling), and lower limits (or a floor), based on what you spent in the previous year.

If you find that your defined withdrawal would result in an amount that's, say, higher than a ceiling of 5% more than your prior year's withdrawal, then you would withdraw only up to the ceiling amount. Similarly, if you find that the defined withdrawal amount falls below a minimum floor you set, then you would withdraw at least the floor amount.

For example, say you withdrew $30,000 from your portfolio in 2015 and find that your 2016 withdrawal would be $30,300 based on a 1% rate of inflation. Instead of going with this defined withdrawal, you would instead, base it on a 2.5% floor, withdraw $30,750, hiking up the 2015 withdrawal by 2.5%.

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