How to set an in-retirement withdrawal rate is a hot topic among Morningstar.com readers, and for good reason: It's one of the most impactful decisions that pre-retirees and retirees can make. Take too little and you give short shrift to your own quality of life; withdraw too much and you risk prematurely depleting your assets.

Because the topic of withdrawal rates has many nuances, I queried posters in the Investing During Retirement forum of Morningstar.com about a specific aspect of retirement distributions: whether retirees are taking fixed withdrawals from their retirement portfolios or varying their distributions based on factors such as market performance or personal income needs.

As usual, my query yielded a rich set of responses showcasing an array of approaches to this issue. To read the complete thread or share your own withdrawal strategy, click here (http://socialize.morningstar.com/NewSocialize/forums/p/305271/3250292.aspx#3250292).

'Pretty Easy System'I didn't define "fixed" and "variable" in my question, so readers differed in their interpretations of the terms. Some posters noted that they're withdrawing a fixed dollar amount per year, which means that their withdrawals fluctuate as a percentage of their portfolios. That's the approach that underpins the so-called 4% rule, as discussed in this article (http://news.morningstar.com/articlenet/article.aspx?id=536284).

Molokoeo is using that general strategy. "I make a fixed dollar withdrawal from my IRA monthly, and supplement that (grudgingly) with occasional withdrawals for one-off, unplanned expenses. Since the value of my portfolio fluctuates daily, I guess that means that my withdrawal rate is variable. My withdrawal rate modestly exceeds the commonly accepted sustainable withdrawal ate, though I'm confident in my ability to sustain my income stream with a diversified portfolio of dividend stocks, bonds, master limited partnerships, preferreds, REITs, and so on"

In a similar vein, dtconroe stays attuned to the paycheck, not the rate. "I focus on cash withdrawal amount instead of rate of withdrawal. I treat monthly withdrawals of cash as a regular paycheck for projected expenses. Every year, I decide whether to change my cash withdrawal amount for my next annual expense projections. If I need more than the cash withdrawal amount, due to unanticipated expenses, I have a savings account for the unexpected."

Other readers, meanwhile, are withdrawing a fixed percentage of their portfolios. Under that approach, the retiree's payout varies in dollar terms based on the performance of the investment assets--taking a fixed percentage yields a bigger paycheck in good years and a smaller one during down markets.

ColonelDan was matter-of-fact in his approval of this strategy. "I withdraw what I need but will not exceed 3% in any one year. The reality is as the market varies, so goes the portfolio balance, so goes one's ability to spend ergo so will the withdrawal amount even though the percentage rate itself may remain fixed. To do otherwise is to deny that reality as I see it."

Packer707 is also using a 3% fixed withdrawal rate. "We are now two years into retirement and planning to maintain/grow our portfolio during our lifetime. We use some small business ventures to fund some fun things like travel. If our investments and small businesses do well we will be able to do more of the fun things."

Glebbb is withdrawing a 4% rate, derived from a combination of income and capital gains. "I have my portfolio yield slightly above 4%, which, along with capital gains, gives me a small amount for rebalancing. All my distributions go into my money market fund. My 40%/60% portfolio should give me about 7% total return, average, so I get moderate growth. I write one check at the end of each year; [it's a] pretty easy system."

Excerpt from:
Are Your Retirement-Portfolio Withdrawals Fixed or Variable?