*Originally published on Financial Planning.
Since I entered this profession almost 40 years ago, I have noticed that the distribution recommendations financial advisors make to clients in retirement fall into one of five approaches — ones that, taken on their own, risk not meeting client expectations.
4% rule: Withdraw 4% of your account balance initially and adjust that dollar amount for inflation annually. (Given low-interest rates these days, it is questionable if this rate is even sustainable.)
Fixed percentage: Withdraw the same rate annually based on prior year-end values.
Fixed-dollar amount: Withdraw a set dollar amount every month or year.
Systematic withdrawals: Withdraw only interest and dividend income leaving principal intact.
Bucket plan: Hold some assets in cash equivalents, some in fixed-income, and some in equities filling the cash bucket when low from the fixed-income bucket or the equities bucket, depending on which is appropriate.