Ensure your retirement savings lasts with these 4 spending strategies.

• According to retirement experts, building a nest egg is easier than deciding how to spend down retirement savings.
• Unknown factors, such as lifespan and healthcare costs, can negatively impact a household's financial stability in the future.
• Retirees can confidently spend their savings with the help of strategies that emphasize adaptability.

Saving for retirement is challenging, but managing that money and making it last throughout your golden years can be even more difficult.

It may not sound tough at first blush.

Consider the potential need for costly health care or long-term care, as well as the future returns of stocks and bonds, when planning for your retirement.

Without a course correction, overzealous spending could lead to dire consequences for retirees who may not be able to return to work to make up a shortfall.

This year, 401(k) plans may have some new developments. Social Security may be a valuable source of wealth for retirees. Closed-end funds may be a suitable option for retirees seeking income.

Drawing down retirement savings is complex, according to David Blanchett, head of retirement research at PGIM.

When you first retire, you make a series of choices. If you follow those choices for a long time and make bad decisions, you will eventually drive toward a cliff and be unable to slow down, resulting in being doomed.

Retirees can employ tactics to confidently stretch their savings, ensuring their nest egg will endure.

Important points

It is crucial to consider certain key aspects when implementing these tactics.

Retirees should view their preferred models as guides rather than precise instructions to follow.

Retirement experts will inform you whether you are spending too much or too little, and whether you can afford to spend a little more each year.

Blanchett stated that individuals frequently seek a gut check during volatile situations.

Rewritten sentence: Investment portfolios are the only source of spending examined by these methods, but retirees may also have guaranteed income from Social Security, pensions, or annuities.

A retiree with a guaranteed income to cover fixed expenses has more flexibility in their portfolio spending, which can primarily fund discretionary costs like travel and entertainment.

Household spending habits will greatly differ in terms of safety.

According to research, a portfolio that is roughly split between stocks and bonds tends to perform the best.

Retirees can make several positive financial decisions before withdrawing from their nest egg.

Reducing fixed expenses, such as paying off a mortgage or selling a second home, and limiting support for adult children, can help reduce reliance on investments and lower the risk of running out of money in retirement.

According to Christine Benz, personal finance director at Morningstar, finding a way to cover fixed expenses with non-portfolio income increases flexibility.

Be dynamic

Flexibility is crucial in adapting to market conditions, such as a stock market dive, and adjusting spending accordingly.

To minimize the risk of "sequence of return," it is important to avoid pulling too much money from investments that may fall in value, leaving less of a runway for them to recover when the market rebounds.

Adjusting your strategy based on portfolio performance can help manage sequence risk, according to Wade Pfau, a professor of retirement income at The American College of Financial Services.

Dynamism is a key feature of the following strategies recommended by retirement experts.

1. The 4% rule with a twist

The 4% rule is a well-known rule of thumb for retirement spending.

To calculate the amount of money to withdraw from their nest egg in the first year of retirement, people should withdraw 4% of their total nest egg. To determine the amount to withdraw in subsequent years, they should adjust the previous year's dollar figure based on the inflation rate.

The total withdrawal amount for an investor from a $1 million portfolio would increase by 2% each year, starting with $40,000 in the first year, $40,800 in the second year, $41,616 in the third year, and so on.

One advantage of this method is that it provides a consistent flow of income, similar to receiving a paycheck.

Experts said that it's likely too rigid for retirees to take the same amount without considering market fluctuations.

According to Benz of Morningstar, it is better not to make an inflation adjustment to a portfolio's year after it has incurred a loss.

If the $1 million nest egg has a negative return in year one, the retiree would withdraw $40,000 in year two (instead of the higher, inflation-adjusted $40,800).

For those on a tight budget, Benz said, the approach may be suitable, and it's straightforward for DIY enthusiasts.

Benz stated that the haircut is not insignificant, considering the current high inflation rate. However, she emphasized that it is a minor adjustment that many individuals could tolerate.

According to Morningstar research, a 3.3% first-year withdrawal rate may be more suitable for future retirees than a 4% rate.

2. Required minimum distributions

The same IRS calculation that retirees use to determine their minimum withdrawal each year from pre-tax 401(k) plans, individual retirement accounts and other pots of money is also used in this strategy.

All of a retiree's savings, not just the accounts subject to federal RMD rules, must be carefully managed to ensure a comfortable retirement.

Calculate the safe spending amount for the year by dividing your total portfolio by the appropriate distribution period based on your age, as indicated on the IRS worksheet.

If a 70-year old has a $1 million portfolio, they would divide $1 million by 27.4 (the distribution period) to obtain a roughly $36,500 withdrawal that year.

Review the IRS worksheet annually and recalculate based on current age and portfolio value.

(Note: The IRS publishes different worksheets according to individual circumstance.)

The tables are conservative, which may result in lower-than-desired annual spending.

Instead of using IRS distribution tables, retirees can utilize an online life-expectancy calculator for determining their expected lifespan.

To determine their annual withdrawal amount, retirees would divide their portfolio value by their estimated duration of life expectancy. For instance, a 70-year-old with a $1 million nest egg who anticipates living another 20 years would divide $1 million by 20, resulting in a $50,000 withdrawal that year.

Blanchett of PGIM prefers a simpler method that is more attuned to the health of retirees, as the IRS tables are based on average life expectancy by age.

The downside of these methods is that they can result in highly variable cash flow from year to year, as withdrawals fluctuate with changes in portfolio value.

According to a Morningstar analysis, they can lead to "ultra-low" balances later in life, when healthcare costs typically rise.

3. Ceiling and floor

Establishing an initial withdrawal rate of 4% is a strategy for managing funds.

Retirees would withdraw a fixed percentage from the remaining portfolio each year, but they also set spending limits below and above which they cannot go.

The American College prefers this method because it is responsive to market fluctuations while maintaining a budget within a specific range.

He emphasized the significance of the floor, stating that it is crucial for a household to allocate funds for living comfortably.

If a retiree decides to spend $40,000 annually from a $1 million retirement fund, that represents a 4% withdrawal rate.

The household sets a $25,000 annual spending floor and a $60,000 upper limit for their portfolio withdrawals. They will take 4% withdrawals each year, but these withdrawals must be between the pre-set floor and ceiling amounts.

4. Guardrails

The system's fundamental principle is that you receive a raise when markets perform well and a pay cut when they underperform.

The 4% rule methodology is used, but with a significant variation: During prosperous years, retirees receive a 10% increase in addition to inflation adjustments and a 10% reduction in pay during market downturns.

When the withdrawal rate falls below 20% of its initial level, a 10% raise is given. On the other hand, a 10% pay cut is given when the withdrawal rate exceeds 20% of its initial level (which is 4.8% in this scenario).

When markets perform well, retirement withdrawals decrease because a retiree can draw the same amount from a larger portfolio. However, when markets decline, retirement withdrawals increase because the fixed amount is a larger share of the smaller portfolio.

According to a recent Morningstar paper, here's an alternative version of the input sentence: According to a recent Morningstar paper, the strategy works.

If a retiree withdraws 4% of $1 million ($40,000) during the first year, let's say.

By the end of year two, the portfolio has grown to $1.4 million. The retiree withdraws $41,200, which is $40,000 plus an inflation adjustment, based on the 4% rule methodology.

To determine if you will receive a 10% raise, divide $41,200 by the portfolio balance ($1.4 million) and calculate the resulting withdrawal rate. In this case, $41,200 represents a 2.9% withdrawal rate, which is below the 4% initial rate by 20%, meeting the criteria for a raise.

The total withdrawal amount for the retiree would be $45,320, which is 10% more than the inflation-adjusted figure of $41,200.

If the $41,200 inflation-adjusted withdrawal is less than 4.8% of the current portfolio value, the retiree would cut the $41,200 by 10% — for a total $37,080 withdrawal that year.