Monthly Income vs Annual Withdrawals. Which Strategy Lasts Longer?

"When it comes to making your retirement savings last, there are two fundamentally different approaches you can take. The first is the more traditional strategy, which focuses on an annual withdrawal, likely around the popular 4% theory. The hope is that by doing so, you'll be able to pull out just enough to live while also having enough money to last for another 30 years."

"The second approach is to look at an income strategy, where a portfolio is structured to generate dividends and distributions, and then live off the cash flow without touching the principal. For the most part, financial planners tend to lean on the withdrawal approach because it aligns with how they have been educated. In other words, the 4% rule is so common, it's almost gospel in the financial world."

Two main retirement strategies exist: the traditional withdrawal method and an income-focused approach. The traditional method typically follows a 4% initial withdrawal adjusted for inflation, selling shares annually from a mixed stock-and-bond portfolio that becomes more conservative with age. The income strategy structures holdings to produce dividends and distributions so retirees can live off cash flow without touching principal. Financial planners commonly favor the withdrawal approach due to training, while the income approach is gaining popularity. Choice of strategy significantly affects asset allocation and longevity of savings, and sequence-of-returns risk can permanently impair retirement portfolios if withdrawals occur during market downturns.

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