Three Retirement Withdrawal Strategies

As I prepare to make my upcoming video on my retirement calculator, I came across this breakdown from an AI that I thought was pretty solid. Here’s a clear look at the three main approaches to withdrawing from your portfolio in retirement:

1. Fixed Dollar Withdrawal

The “Inflation-Adjusted” Model

This is the classic “4% Rule” approach. You pick a starting dollar amount and stick to it, usually adjusting only for inflation.

How it works:

You withdraw $40,000 in Year 1. In Year 2, you withdraw $40,000 + inflation, regardless of whether the market is up or down.

The Pro: Maximum lifestyle stability. Your “paycheck” is predictable.
The Con: High sequence-of-returns risk. If the market crashes 20% and you keep taking out the same fixed dollar amount, you’re liquidating a much larger percentage of your remaining shares, which can lead to a “death spiral.”

2. Fixed Percentage Rate

The “Endowment” Model

This is the most “market-sensitive” approach. You simply take a flat percentage of the remaining balance every year.

How it works:

If you choose 4%, and you have $1M, you take $40k. If the market drops and you have $800k next year, you take $32k.

The Pro: You can never mathematically hit zero. As the portfolio shrinks, your withdrawals shrink.
The Con: Brutal volatility for your lifestyle. If the market drops significantly, your “paycheck” takes a massive hit, which is hard to manage if your mortgage or grocery bills stay the same.

3. Fixed % Spend Rate with Amortization

The “Merton/PMT” Model

This is where the PMT (Payment) formula comes in. It treats your portfolio like a “reverse mortgage” that you’re paying to yourself.

How it works:

Instead of a flat percentage of the original balance or current balance, you recalculate the withdrawal based on your remaining life expectancy and a conservative expected return.

The Formula Logic:

It uses the same math as a loan: PMT(rate, nper, pv) where “nper” is how many years you have left.

The Key Difference:

You recalculate annually based on your current portfolio balance and remaining life expectancy. If the market has been kind and your portfolio has grown, you can withdraw more. If it’s been rough and your balance has shrunk, you adjust downward—even if you’re older.