Retirement is a time to enjoy the fruits of your labor, but one of the biggest challenges many retirees face is figuring out how to make their savings last. This challenge becomes even more daunting when the market is volatile. If you’re a Baby Boomer, senior or retiree who’s been keeping an eye on the news, you’ve likely seen reports of market fluctuations, rising inflation and potential recessions. It can feel like your financial future is on shaky ground.

The good news? With the right withdrawal strategy, you can manage your retirement savings carefully, even in an uncertain market. The key is to develop a flexible plan that balances growth and security, allowing you to adjust as needed while still enjoying your retirement. Here’s how you can safely withdraw from your nest egg and ensure that it lasts through the years, no matter what the market does.

1. The 4% rule: A guideline, not a guarantee

If you’ve done any research on retirement withdrawals, you’ve probably come across the “4% rule.” This long-standing rule of thumb suggests that you can safely withdraw 4% of your retirement savings in the first year, then adjust for inflation in the following years. The idea is that by sticking to this percentage, your money should last for at least 30 years.

While the 4% rule has served as a helpful guideline for many retirees, it’s important to recognize that it’s based on historical market data and assumptions that may not hold true in today’s economic environment. With market volatility, rising health care costs and inflation, a rigid 4% withdrawal rate may not be appropriate for everyone.

What you can do:

Instead of treating the 4% rule as a hard-and-fast rule, use it as a starting point. Your withdrawal rate should depend on a variety of factors, including the size of your retirement savings, your expected lifespan, your expenses and the overall economic climate. For many retirees, a more flexible approach — such as adjusting withdrawals based on market performance — is a smarter, more sustainable option.

2. Dynamic withdrawals: Adjusting based on market conditions

In an uncertain market, one of the most effective withdrawal strategies is to be flexible with your spending. This is where dynamic withdrawals come in. Instead of taking out a fixed amount every year, dynamic withdrawals allow you to adjust your spending based on how well your investments are performing.

For example, in years when the market performs well, you can afford to withdraw a bit more from your savings. In years when the market is down, you tighten the belt and withdraw less. By reducing withdrawals during market downturns, you give your investments more time to recover, preserving the longevity of your portfolio.

What you can do:

Consider setting a range for your withdrawals rather than a fixed amount. A common strategy is to limit withdrawals to 3-5% of your portfolio, depending on market conditions. During years when the market is performing well, you can withdraw closer to 5%. When the market is down, consider reducing your withdrawals to 3% or even less to prevent depleting your savings too quickly.

This approach requires some flexibility with your spending, so it’s important to build a budget that can accommodate varying withdrawal amounts.

3. The bucket strategy: Protecting short-term needs

The bucket strategy is a popular approach that helps retirees manage withdrawals while safeguarding against market volatility. Essentially, this strategy involves dividing your retirement savings into three “buckets” based on your time horizon and risk tolerance:

Bucket 1: Short-term needs – This bucket holds enough cash or low-risk investments (like money market funds or short-term bonds) to cover your living expenses for the next two to five years. By keeping this money in a safe, easily accessible place, you can avoid selling investments during market downturns to cover your everyday costs.

Bucket 2: Mid-term needs – This bucket contains investments that are a bit more growth-oriented, such as bonds or dividend-paying stocks. This money is meant to be tapped in five to 10 years, giving it time to grow while still being relatively low-risk.

Bucket 3: Long-term growth – The final bucket contains the bulk of your retirement savings, invested in higher-risk, higher-reward assets like stocks. This money isn’t needed for 10+ years, so it has more time to recover from any market downturns and benefit from long-term growth.

What you can do:

By structuring your portfolio with this bucket strategy, you can avoid selling investments at a loss when the market is down. You’ll have your short-term expenses covered, while still allowing your longer-term investments time to grow.

This strategy also provides peace of mind — you know that your immediate needs are covered, even if the market takes a dip.

4. Guarding against inflation: Keeping pace with rising costs

Inflation is a silent risk that can erode the purchasing power of your savings over time. As prices rise, the same amount of money buys less and less, meaning you’ll need to withdraw more from your savings to maintain your standard of living.

For retirees, inflation can be particularly problematic, as many are living on a fixed income. In an uncertain market, it’s important to have a plan for dealing with inflation so that your withdrawals don’t outpace your savings.

What you can do:

To protect against inflation, make sure a portion of your retirement portfolio is invested in assets that have the potential to grow faster than inflation. Stocks, real estate investment trusts (REITs) and Treasury Inflation-Protected Securities (TIPS) are all options that can help you keep pace with rising costs.

Additionally, consider including investments that provide guaranteed income, like fixed index annuities. These products can offer inflation protection by providing income that adjusts with market performance.

5. Minimizing taxes on withdrawals

Taxes can take a significant bite out of your retirement withdrawals if you’re not careful. Many retirees don’t realize how much they’ll owe in taxes when they begin withdrawing from tax-deferred accounts like 401(k)s and traditional IRAs. And if you’re withdrawing from multiple accounts, it’s easy to get hit with a larger tax bill than you expected.

In a volatile market, keeping more of your money in your pocket is especially important.

What you can do:

To minimize taxes, consider the order in which you withdraw from your accounts. Many retirees follow the “tax-efficient withdrawal” strategy, which involves drawing from taxable accounts first, tax-deferred accounts (like 401(k)s) next, and Roth accounts last. By delaying withdrawals from tax-deferred accounts, you give your savings more time to grow, while potentially keeping yourself in a lower tax bracket.

Roth conversions can also be a smart move if you anticipate being in a higher tax bracket later in retirement. By converting a portion of your tax-deferred accounts to a Roth IRA, you’ll pay taxes now at a potentially lower rate, and future withdrawals will be tax-free.

6. Creating a spending plan: Living within your means

Finally, the best way to ensure that your retirement savings last is to have a realistic spending plan. Even the best withdrawal strategies can fall apart if you’re consistently spending more than your plan allows.

A good spending plan accounts for both essential and discretionary expenses and builds in flexibility for unexpected costs.

What you can do:

Take a detailed look at your budget and identify where you can make adjustments if needed. Consider cutting back on discretionary expenses during market downturns or postponing large purchases. By keeping your spending in check, you’ll reduce the amount you need to withdraw from your savings.

Conclusion

In an uncertain market, it’s normal to feel concerned about your retirement savings. But with the right withdrawal strategy, you can navigate market volatility and protect your nest egg for the long haul. Whether you choose to follow the 4% rule, implement a dynamic withdrawal strategy or adopt the bucket approach, the key is to stay flexible, adjust based on market conditions and have a plan in place.

Remember, retirement is a marathon, not a sprint. By taking a careful, measured approach to your withdrawals, you can ensure that your savings last as long as you do — no matter what the market throws your way.

Lyle Boss, endorsed by Glenn Beck as the premier retirement advisor for Utah and the Mountain West States. Boss Financial, 955 Chambers St. Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.