Since
the biggest risk in taking systematic withdrawals is that you’ll run
out of money, it’s important to carefully gauge how much you can afford
to withdraw.
One way to make your funds last longer is to take out less than the account earns and thus avoid reducing your
principal
— so long as you’re still meeting any
minimum required distribution (MRD).
For
example, if you have $100,000 in a fund that earns about 5% annually,
you could set up a monthly withdrawal that would pay you 5% or less
each year. You could set this up as a fixed dollar withdrawal — in this
case, $100,000 x 5% = $5,000 annually, roughly $417 per month. Or you
could set up a percentage withdrawal. Either way, you can always change
your mind if your account performs better or worse than you
anticipated.
If you were to withdraw the year’s $5,000 from your account as a
lump sum,
you would run the risk of doing so when your account balance is low and taking more than 5% of the total.
Smaller, regular fixed-dollar withdrawals spread out over time can help reduce the effects of market
volatility.
As you receive payments, your account value will fluctuate with the
market and the differences will tend to average out. To make it work,
however, you should expect to take fixed dollar withdrawals over
several years.
Reviewing your needs every three to five years will help you make sure you’re on track and not depleting your accounts too quickly.
