Many financial advisors tell retirees who stop working around age 65 to start by taking 4 percent from their investment portfolio. Each year, that initial amount can be increased by the inflation rate. Following such a plan probably will keep you from depleting your portfolio while you are still alive.
Suppose, for example, that Bob Brown retires with $400,000 worth of investments at age 65. Bob might withdraw $16,000 (4 percent of $400,000) in the first year of his retirement. That $16,000, in addition to his pension, Social Security, etc., will provide his living expenses.
If inflation is 3 percent that year, Bob can increase his portfolio withdrawal by 3 percent, to $16,480, the next year. And so on, year after year.
What if Bob sees that $16,000 from his portfolio won’t be enough to maintain his lifestyle in retirement? Bob might have to keep working for several more years. The extra years of earning income could increase Bob’s pension, his Social Security benefits, and the size of his investment portfolio.
