Julien's Journal May 2016 (Volume 41, Number 5) | Page 64

Personal Finance

Withdrawal Strategies for Your
Retirement Savings

®

Tom Jaeger is CFP , Senior Vice President
– Investments for Wells Fargo Advisors in
Dubuque. He can be reached at
[phone].

Retirement represents a shift from
depending upon income from work to
accessing other income sources such
as Social Security, pensions, annuities,
savings, and investments. Making this
transition from the asset accumulation phase of your financial life to the
distribution phase requires striking the
right balance between how little you
can withdraw and still live comfortably
vs. how much you can withdraw and not
outlive your savings.
The rate at which you draw down your assets, generally known as your withdrawal
rate, is the single most important determinant of success in terms of making sure
your savings last throughout your lifetime.
The following is an overview of four basic
strategies for choosing how to make withdrawals. Which withdrawal methods you
choose to implement will depend on your
personal situation. This information provides a good overview, but you may want to
enlist the help of a Financial Advisor to help
you choose which method – or combination of methods – works best for you. Keep
in mind, regardless of which withdrawal
methods you use, the more critical piece
in determining how long your savings will
last is how much you withdraw and when.
“Income only” method. The first method
is the traditional “income only” method.
With this strategy you withdrawal only the
60  ❖  Julien’s Journal ❖ May 2016

interest and dividends generated by your
portfolio and do not touch the principal.
This might be a good option if: (a) you have
a substantial portfolio; (b) you have spending flexibility and can restrict your spending to the income your portfolio generates
each year; or (c) you have other sources of
income (e.g., pensions, annuity payments,
Social Security) that can supplement any
shortfalls in years of lower than anticipated
returns. However, this strategy may not deliver enough income to meet the spending
needs of most retirees.
“Total return” method. A second method to
consider is the “total return” method. Using
this strategy, your portfolio is invested ac-

cording to your asset allocation guidelines
and rebalanced periodically to maintain
the allocation. You determine what percentage you want withdrawn at periodic
intervals to provide income. This strategy
can be useful if you have a relatively large
portfolio, you’re comfortable with market
volatility, and you can adjust your spending
(as market fluctuations affect how much
income is distributed and the value of your
portfolio).
“Income floor” method. The third option is
the so-called “income floor” method. Using this method, you establish a minimum
amount or “floor” of income that supports
your essential spending. This strategy is