If you're generally healthy, have adequate savings and retire at age 65, most planners say you can safely begin with a 4 percent to 6 percent withdrawal rate during your first year of retirement. After that, build in cost-of-living adjustments each year to account for inflation.
For example, if you've got a portfolio worth $500,000, withdraw roughly $25,000 the first year, and add an additional $750 the second year (using the standard 3 percent inflation rate) and so on.
Assuming a 7 percent return on your overall portfolio, that 4 percent to 6 percent withdrawal rate will allow you to draw only from earnings without depleting your principal. If you think the return on your portfolio will be lower than 7 percent, adjust your income amount accordingly.
If you retire early, you will not only require a larger nest egg to cover your living expenses for longer, you may have to reduce your withdrawal rate by 1 to 2 percentage points.
"Inflation is a bigger factor for early retirees because it erodes your assets over time," says Balcom. "Some people go into retirement thinking they should invest heavily in certificates of deposit or bonds because they get a guaranteed return, but they don't understand that with taxes and inflation, there's no real return. You need to continue investing so you don't run out of money, especially if you plan to spend more than 30 years retired."
Regardless of age, he adds, all retirees should have a financial safety net in place to cover their living expenses for at least 12 months (ideally two years) and strive for an 8 percent investment return on average.