”Paul Ruedi, president of Ruedi Wealth Management, Inc., in Champaign, Illinois, has been running retirement planning simulation models for 20 years. What retirement income strategies does he think work best for retirees? The best withdrawal strategy is a flexible strategy, and one that is built with “guardrails”, he says. “Start out with a balanced portfolio (60/40) with an initial withdrawal rate of around 5 percent,” he explains.“Then, each year, draw down your portfolio by a figure close to the current inflation rate if you had a positive return for the prior year. Each year, calculate your withdrawal rate (how much you are planning to withdraw by the current balance).”
- “If that figure is more than 20 percent higher than your initial rate (5 percent in this case), then reduce your withdrawal by 10 percent,” Ruedi advises. “For example, if you start at 5 percent, once the withdrawal rate is above 6 percent, reduce spending by 10 percent,” he says.
- “Correspondingly, if your withdrawal rate is 20 percent lower than your initial rate of 5 percent, increase spending from your portfolio by 10 percent,” concludes Ruedi.