January 7, 2022

Retirement Withdrawal Strategies: 5 Ways to Extend Your Savings

One of the first things to understand is that many retirement accounts carry a required minimum distribution or RMD, that kicks in at retirement age.

Professionals who put money away for retirement in the form of a 401(k) or a traditional or Roth IRA often want to have control over the ways they withdraw this money later in life. Some of this has to do with understanding your exposure to market cycles, how taxation affects your retirement accounts, and much more. Let’s talk about five retirement withdrawal strategies you can put in place as you age.

Withdrawal Basics

One of the first things to understand is that many retirement accounts carry a required minimum distribution or RMD, that kicks in at retirement age.

On the other hand, most account holders can start taking out penalty-free withdrawals at the age of 59 ½.

But no matter what age you start at, some annual retirement withdrawal strategies can help you to balance your retirement income against the markets and other factors of your financial reality at that time.

The 4% Retirement Withdrawal Strategy

The 4% retirement withdrawal strategy is a common and popular way for retired individuals to organize their withdrawals.

In this scenario, as you start to take retirement withdrawals at a certain age, for example, at age 70, you take an initial 4% out the first year. The next year, you take that same 4% along with 2% of that amount, in order to account for inflation.

The 4% strategy, though, is sometimes confusing because of how it’s explained. It’s very important to understand that the 2% tacked on is not 2% of the account holdings, but 2% of the original 4%!

So for example, if someone has $500,000 saved for retirement and takes out $20,000 that first year, the second year they will take out $20,400. (not $30,000!) It’s still 4% of the $500,000, with 2% of the $20,000 (or $400) tacked on. Finance pros who do not take the time to explain this detail do their clients a disservice.

The 4% strategy benefits those who want to mitigate the effects of inflation on their income. Some professionals suggest that individuals using this approach should have a certain percentage of their money in equities, and keep an eye on it as they go because the 4% strategy does not account for some of the more extreme market cycles. In fact, you might have to adjust the percentage based on your individual situation and the market environment.

The Fixed Dollar Retirement Withdrawal Strategy

The fixed dollar strategy, the simplest of all retirement withdrawal strategies, does not account for inflation or changes to the market. Here, the retirement account holder simply takes the same fixed dollar amount out each year.

The Fixed Percentage Retirement Withdrawal Strategy

The fixed percentage strategy is a bit different.

In this retirement withdrawal strategy, the account holder will take out a certain percentage of the portfolio every year. The dollar amounts will vary, usually slightly, but then at the end, everything will be neat and tidy. As the markets expand and contract, the account holder is taking a certain fixed chunk of that saved money each year until it is gone.

The Buckets Retirement Withdrawal Strategy

This retirement withdrawal strategy is a bit different in that it contemplates more than one source for retirement withdrawals.

Here, the old wisdom on a diversified portfolio applies. The buckets strategy involves a retirement saver originally setting up three different asset pools. One will be cash. Another will be equities. The third one will be securities — bonds and notes that yield interest. (These days, one could add a fourth bucket for cryptocurrencies and decentralized finance assets, or perhaps consider those assets for a subsection of the equities pool, which more accurately preserves the original asset mix.)

This is a much more complicated and pro-level investment strategy than any of the others above. It attracts people who like to spend time managing their retirement money themselves or want to hire an advisor.

The idea for withdrawals with the bucket plan is that savers will then withdraw allocated money from each of the different buckets in each year of retirement. It provides a very granular level of control, but it takes time and effort.

Dynamic Withdrawals

This is the freest retirement withdrawal strategy of them all. It involves closely watching markets and market realities, and withdrawing accordingly.

Basically, with dynamic withdrawals, the investor takes a more granular approach: maybe selling more of one kind of equity or changing the amounts withdrawn according to what the market is doing on a particular week. There’s more active choice involved. In fact, some experts would talk about dynamic withdrawals as a form of “active management” of a withdrawal plan and contrast some of the other options, like fixed amount withdrawals, as “passive management.”

Some experts talk about the dynamic withdrawals method having “guardrails” for investors, where they can course-correct due to big market changes.

Factors in Retirement Withdrawal Strategies

As you go, you’ll want to be thinking about some of the biggest factors in how to structure retirement fund withdrawals.

Market Conditions
One of these, obviously, is the market. Who knows what the market will be like in those later years? There may be as-of-yet unknown sectors or new types of derivatives, or any other kinds of investments, that change how funds are managed.

Another of these unknowns is taxes. The traditional retirement account is, in some senses, set up for one fundamental purpose — to allow account holders to take money out in years when their annual income is low.

However, today’s world paints a more nuanced picture of an individual’s tax situation over his or her lifetime.

Your Age at Retirement
The traditional way of thinking about finance and retirement assumed that people doing largely physical jobs would reach the end of their active careers at a certain age and then cease to collect income from active work (or anything else, mostly, except retirement benefits).

But the nature of work has changed dramatically in the last two or three decades. With knowledge based work quickly eclipsing physical labor, individuals will be able to work much later into their lives. In a gig economy, they are much more likely to set up various revenue streams that will continue in those post-retirement years, which will raise their active income, diluting some of the benefits of the traditional retirement plan.

Social Security
All of that has to be considered in any retirement strategy, along with another major element — Social Security.

Workers pay into Social Security throughout their careers, with the understanding that they will then start to receive Social Security payments in retirement.

That means that any retirement withdrawal strategy has to coexist with the Social Security payments that the senior is receiving from the government in exchange for taxes paid in previous years.

All of this also has to work with an overall picture of someone’s life expectancy. As someone approaches retirement, if they encounter chronic health conditions or disease, they may reevaluate how payouts should happen.


These are of course general guideline for directing retirement account withdrawals. For more detailed financial advice, contact a professional at Churchill Management Group. Our financial advisors are experienced in helping clients take retirement planning and retirement withdrawal strategies to the next level.

What’s the benefit of strategic retirement withdrawals?

Two main benefits of strategic retirement withdrawals are balancing funds for inflation and dealing with market corrections.

At the same time, some of these retirement withdrawal strategies can help protect retired individuals from withdrawing in ways that hurt the growth of their money because of market changes.

What are the benefits of a Roth IRA?

Since Roth IRAs have initial contributions subject to income tax, they have tax-free withdrawals. Also, there is not a requirement to withdraw all of the IRA money before the end of the account holder’s life.

Can a self-employed person set up a retirement plan?

Yes. Traditional and Roth IRAs are available to self-employed persons through a brokerage or financial institution.

What do financial advisors do?

Financial advisors help individuals and households plan for the future by managing their money in ways that help them grow their capital over the course of a working career.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

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