If You're Not Doing This 1 Thing, You're Probably Messing Up Retirement Account Withdrawals

Making a retirement nest egg last for 20 or 30 years is difficult enough when markets cooperate. The challenge becomes much greater when stocks fall just as you begin relying on your portfolio to cover monthly expenses.

The habit that can make the biggest difference is adjusting your spending when market conditions change, which could help you save money in retirement without locking in losses.

Retirees who rigidly withdraw the same inflation-adjusted amount every year may be forced to sell investments at depressed prices, while those willing to trim discretionary spending can give their portfolios more time to recover.

Why fixed withdrawals can become risky

One common retirement strategy is to withdraw a set percentage during the first year, then increase that dollar amount annually to keep pace with inflation.

Experts generally suggest that retirees start by withdrawing no more than 4% to 5% of their savings, with about 3.9% considered a safe withdrawal rate in 2026, although the appropriate rate depends on factors such as retirement length, asset allocation, and market performance.

The problem is not necessarily the starting percentage. It is continuing to pull the same amount from the portfolio after its value falls substantially.

Selling during downturns can drain savings faster

Imagine retiring with $1 million and withdrawing $40,000 annually. If the market falls 25%, the portfolio could decline to $750,000 before accounting for withdrawals.

Taking the same $40,000 now removes a larger share of the remaining account. It may also require selling more shares while prices are low. Those shares are no longer invested when markets eventually recover.

This problem is known as sequence-of-returns risk. Two retirees can earn similar average returns but have very different outcomes depending on whether losses occur early or late in retirement. Early losses can be particularly damaging because the portfolio has less money left to benefit from later gains.

Adjust spending instead of ignoring the market

A flexible strategy allows withdrawals to move within reasonable limits based on how the portfolio is performing.

Vanguard describes dynamic spending as an approach in which retirees can give themselves a modest raise during strong markets and tighten spending after weak performance. The goal is not to make retirement spending unpredictable, but to prevent withdrawals from placing too much pressure on a shrinking portfolio.

Research also finds that flexible methods can support higher starting withdrawals because retirees agree to reduce spending when portfolio values decline. Even temporary adjustments can help. Spending can increase again after the portfolio recovers, provided the new withdrawal level remains sustainable.

Start with discretionary spending you can delay

Flexible spending does not mean cutting groceries, medical care, or housing costs every time stocks have a bad month.

The easier approach is to separate essential expenses from discretionary ones before a downturn occurs. Essentials may include housing, utilities, insurance, health care, food, and basic transportation.

Discretionary costs may include vacations, restaurant meals, gifts, entertainment, home improvements, or replacing a vehicle earlier than necessary. During a weak market year, postponing one major trip or renovation could reduce the amount that must be withdrawn from investments.

The adjustment does not have to be dramatic. The goal is simply to avoid selling more assets than necessary while prices are depressed.

Build a cash cushion before you need it

A cash reserve can provide another layer of protection by covering spending without requiring immediate stock sales.

It is recommended to keep around one year of expenses in cash and another two to four years in conservative investments, such as short-term bonds. The exact amount will depend on guaranteed income, risk tolerance, and monthly needs.

During strong markets, retirees can sell appreciated assets and replenish that reserve. During downturns, they can draw from cash while leaving stocks untouched. Holding too much cash can reduce long-term growth and expose more of the portfolio to inflation.

However, keeping one to three years of planned withdrawals readily available may provide enough breathing room to avoid selling stocks at an especially bad time.

Review the plan instead of reacting emotionally

Flexible withdrawals should also follow predetermined rules rather than fear or market headlines. Retirees might review the plan once or twice each year and decide whether portfolio performance supports an inflation increase, calls for unchanged spending, or requires a temporary reduction.

The guardrail approach involves regularly reassessing whether a spending plan remains sustainable and making corrections when needed.

Setting those rules in advance can make it easier to cut spending calmly instead of panicking after losses have already occurred.

Bottom line

The safest withdrawal strategy is not necessarily the one that produces the same paycheck every year. Holding spending rigid through a market decline can force you to sell investments at low prices and leave fewer assets available for the eventual recovery.

Trimming discretionary spending during weak years and maintaining a cash cushion can reduce that pressure, helping protect your retirement plan over decades.

You May Also Like

$200 Bonus + Up to 5% Cash Back

Earn a $200 bonus after spending $500 on purchases in your first 3 months from account opening. Member FDIC

SPONSORED

Almost 80% of Americans Fear a Retirement Age Increase — Here’s the Real Reason Why

By FinanceBuzz Editors

10 Smart Money Moves to Retire

By FinanceBuzz Editors

The Easiest Way to Diversify Your Investment Portfolio With Fine Art

By FinanceBuzz Editors

7 Brilliant Ways to Build Wealth After 40

By FinanceBuzz Editors

5 Ways Seniors Are Throwing Away Money

By FinanceBuzz Editors

Best High-Yield Savings Accounts of August 2026

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms