Your Finance: Retirement withdrawals

After a lifetime of diligently saving, retirees are faced with a new question: How much can they take out during retirement?

For many years, retirement experts have been helping retirees meet that challenge by telling them that 4 percent is a safe withdrawal rate. The theory, supported with lots of backtesting, holds that if you keep your portfolio diversified and start your retirement with a 4 percent withdrawal, you can increase your withdrawal by the inflation rate every year and be almost certain your money will last for 30 years.

But many people are retiring at 62 or younger, and living into their 90s, so 30 years isn't always enough. Even more significantly, the market meltdown of 2008-2009 drove home the weakness of the 4 percent rule. When stocks and bonds deliver poor returns, even 4 percent isn't safe enough.

So, how can you live well enough without risking your future? Here are some pointers.

Investments matter. William Bengen, a financial adviser and pioneer of safe withdrawal rate methods, found that retirees could typically bump their initial withdrawal to 4.5 percent of their accounts if they included small stocks (which typically grow faster than large stocks) in their investment mix. The typical 4 percent rule assumes an account holder retires with a mix of 60 percent stocks and 40 percent bonds. If all of your savings are in bank accounts earning less than 1 percent a year, your safe withdrawal rate will be lower than if you invest in a variety of stocks and bonds.

You don't have to increase for inflation every year. Most retirees living on their own money don't actually increase their withdrawals by 3 percent or some similar number every year. They try to stick with their initial withdrawal.

Use common sense. Have a great year in the stock market? Maybe you can withdraw some extra money and take a special trip. If your assets have taken a hit, you might prefer to tighten your belt.

When you're a homeowner. If you have a substantial amount of net worth tied up in home equity, you can take bigger withdrawals early, on the expectation that you'll sell your house or use a reverse mortgage to fund your later retirement years.

There are other reasons to front-load. Taking more than 4 percent out of your account early on also makes sense if you expect to curtail your spending when you are older.

A Social Security incentive. Perhaps the best reason to take bigger withdrawals early is to allow you to defer Social Security. Because your benefits go up by roughly 8 percent a year for every year until you start claiming them, using 401(k) money to live on between the ages of 62 and 66 or even 70 will enable you to boost those benefits. That's worthwhile, because Social Security benefits do last a lifetime and do adjust for inflation every year.