Too Many Retirees Withdraw Money the Wrong Way. Here's a Smarter Approach.

For many people, the hardest part of retirement planning begins after they stop working. Saving for retirement is one challenge. Figuring out how to turn those savings into lasting income is another.

It's common for retirees to establish a retirement savings withdrawal strategy based on a fixed rate. For example, the 4% rule is a popular one for retirees.

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But sticking to a fixed withdrawal rate could actually end up hurting you. A better approach? Use market conditions to guide your withdrawals instead.

It pays to be flexible in retirement

You may be inclined to withdraw a fixed amount from your retirement savings every year, plus adjustments for inflation. This approach might make your life easier from a planning standpoint, since you're sticking to the same rate for many years. But it could also put unnecessary stress on your nest egg.

If you stick to the same withdrawal rate when the market is down, you could eventually put yourself at risk of running out of money. And even if that doesn't happen, if you're hoping to pass wealth along to heirs, you may not want to let your balance drop too heavily.

The solution? Adjust your withdrawals based on market performance.

Here's how that might work: You start by estimating your annual income needs and figuring out a withdrawal rate that supports them. From there, you stick to that plan when the market is doing well or even flat. But during market downturns, you adjust your spending downward to limit the amount you need to withdraw.

You're apt to have the most flexibility in the discretionary part of your budget. After all, you need to pay your car insurance, eat, and cover your property tax bill. But you can adjust things like leisure spending and travel during periods when the market is down to minimize strain on your savings.

Now, at first, that might seem like a raw deal. After all, you can't control what the market does. Why should you be denied things because of a downturn?

But if you don't take this approach, you could end up putting your savings and long-term financial stability at risk. And remember, during strong market years, you can increase your spending and withdrawals to compensate if you so choose.

The right approach could make a huge difference

Part of the goal of saving for retirement is to not have to constantly worry about money once you stop working. If you don't adjust withdrawals when the market is down, you might cause yourself a lot of stress.

So rather than take a rigid approach, be ready to pivot. It could be your ticket to stretching your savings as long as you need to.

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