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Portfolio Withdrawal Strategies Using Cash, VFSTX and VWINX

edited June 2022 in Fund Discussions
We all are pretty familiar with the 4% rule which provides a mechanism to adjust one's SWR or "safe withdrawal rate" based on one portfolio value. In a year like this, any percentage withdrawal feels anything but "safe".

For example, if one started the year with a portfolio value of$1M and took a 4% withdrawal for the up coming year, one would have pulled ($1,000,000* .04) or $40,000. If after that withdrawal one's portfolio fell 20%. That $1M portfolio minus $40,000 (withdrawal) minus a 20% market correction, is now $768,000.

This math frightens retirees. It's human nature to see this 24.2% portfolio drop as a permanent loss. This can trigger some of us to "sell low" and other poor timing strategies.

For me, years before pulling from my retirement portfolio, I tried to determine what my yearly withdrawal needs were going to be and decided to separate those 3-5 year needs into lower volatility assets. In a sense, try to insulated these near term withdrawals from near term volatility. I would give up some upside to protect against the downside. So instead of selling equities into down markets, I positioned 3-5 years of withdrawals in assets that were less exposed to equity assets volatility. For me, these lower volatility assets are CASH, ST Bonds (VFSTX), and conservative allocation funds (such as VWINX).


I position 20% of my retirement portfolio in low volatility assets. Collectively the losses in these assets YTD has been close to (-6.5%). with this in mind, I have reduced my 4% SWR by 7%. So instead of my normal 4% SWR of $20,0000, I limit myself to 7% less or $18,600. I am hoping it is a helpful adjustment that my budget can handle.

Any criticisms, comments or strategies welcome.


  • Looks like a variation of the bucket strategy for asset allocation.
  • edited June 2022
    I haven't gone to the withdraw side yet, but I did set myself up very much like you @bee. I only set aside 2 years, but I will up it to 3-4 years when I do finally give up my part-time work and start withdrawals. My withdrawal bucket must be more conservative than yours. It's down about 2% YTD. The largest holding is RPHYX, about 40%. I have been pulling money out of the short-term bond holdings and putting it into short term CDs, 3-12 mo durations.

    I like your withdrawal % reduction idea to compensate for loss in the bucket.
  • @MikeM: good for RPHYX, for going up year after year, but getting dissed by M* which has it in the wrong category.
  • I agree about the M* rating @BenWP. Thank goodness for reviews and descriptions like David Snowball offers to understand what you are buying and how it fits in a portfolio. I cringe when people call anything but a MM or CD a "cash alternative", but this is certainly a low volatility, consistently positive return fund. Closer to cash by those measures than to M*'s HY bond description.
  • My only concerns with "bucket" suggestions is that I think they underestimate how long the market can be down. While I do not think American Association of Individual Investors (AAII) is helpful most of the time, they did provide simple guidelines for withdrawals. When the SP500 is within 5% of its all time high, take money out of stocks. When it is not use your cash. This avoids selling in a down market

    They think 4 to 5 years cash is enough, but if you go back to 1929 you can see years where the market took 7 to 8 years to recover.

    I would keep at least 6 or 8 years of minimal expenses in cash or short term bonds

    The worst thing that can happen in retirement is to go into it in the middle of a bear market
  • Before pulling the pin,retiring, one should have more than a 3 legged stool or bucket in place. Pension, health care, spending pre & post retirement estimate. Can you get by with spending less? Age at which you retire, meaning when will SS & Medicare kick in ? What are you going to do to fill all that free time. To much sitting will probably become a problem . I'm speaking from experience here.

    Time to hit the gym, Derf
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