A Good Retirement Formula and Strategy – Common Retirement Questions

Key Takeaways

• The 4% rule has significant limitations: real retirees don't spend in consistent annual amounts and their actual spending typically decreases in mid-retirement on an inflation-adjusted basis, making static withdrawal formulas unreliable
• Use a Required Minimum Distribution (RMD) approach or similar age-based formula that allows you to withdraw larger percentages of your portfolio as you age, since you have less time for the money to sustain you
• Implement a dynamic withdrawal strategy that increases your annual withdrawals in years when your portfolio gains value and decreases them when portfolio losses exceed a set threshold (e.g., 10-20% decline)
• Create a 'fundedness ratio' plan by projecting your entire lifetime of withdrawals and calculating sustainability—this allows one-time or periodic expenses (vacations, home repairs, new cars) while preventing permanent spending increases that would jeopardize your plan
• If you're overfunded and required to take RMDs you don't need, consider qualified charitable distributions to reduce taxable income or transfer shares to a taxable account to keep funds invested while satisfying distribution requirements