retirement

Avoid running out of money in retirement

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

Mutual fund giant Vanguard's dynamic approach to portfolio withdrawals is based on a combination of two tactics: a) starting off with a specific dollar-amount withdrawal and adjusting it for inflation each year, and b) 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 percent 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, you withdrew $30,000 from your portfolio in 2013 and find that your 2014 withdrawal would be $30,300 based on a 1 percent rate of inflation. Instead of going with this defined withdrawal, you would instead, based on a 2.5 percent floor, withdraw $30,750, hiking up the 2013 withdrawal by 2.5 percent.

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