The Hidden Risk in Fixed Withdrawals

Dear Investor,

If you’ve ever paused mid-headline and wondered, “Will my savings still be there when the next crisis hits?”, you’re not alone. Capital preservation isn’t just a goal—it’s your sleep at night. Today we’ll unpack two time-tested ways to turn a lifetime of saving into a lifetime of “paychecks,” so you can stay invested, stay calm, and stay in control.

The good news? Neither strategy requires exotic investments or market timing. They simply organize what you already own in a way that matches your comfort with risk.

THE BIG PICTURE: WHY THIS MATTERS

• 2022 reminded us how brutal back-to-back market declines can feel. 

• Ten-year Treasuries still hover around 4.4 %, yet we all know rates can fall as fast as they rose.

• Inflation, even at a tamer 2.2 %, quietly erodes purchasing power year after year.

Choosing the right withdrawal framework is the antidote to that background noise. Let’s look at the two leading contenders.

STRATEGY #1 – THE “BUCKET” PLAN
(Think Three Coolers in the RV)

Imagine dividing a $1 million IRA into three clearly labeled compartments:

Bucket 1: Cash for Years 0–3

$120,000 in FDIC CDs or T-Bills covers roughly $40,000 of annual spending.

Bucket 2: Bonds for Years 4–10 

$280,000 in short- to intermediate-term Treasuries and high-grade corporates.

Bucket 3: Growth for Years 11+ 

$600,000 in diversified stock and dividend funds to outpace inflation.

After strong market years, you “ladle” gains from Bucket 3 forward, refilling the earlier buckets so you’re never forced to sell stocks in a slump.

Why conservative investors like it: 

✓ Insulation from early-retirement shocks. Those first three years are pre-paid.

✓ Emotional relief. Watching a bear market while knowing your next 36 checks are already funded is priceless.

Drawbacks to keep in mind:

✗ More moving parts—someone (you or an adviser) must rebalance.

✗ Cash can lag inflation if yields head south.

STRATEGY #2 – THE CLASSIC 4 % RULE 
(One Faucet, Medium Flow)

Traditional advice says withdraw 4 % of your portfolio the first year, then boost that dollar amount each year for inflation:

Year 1: 4 % × $1 million = $40,000 

Year 2: $40,000 × 1.022 = $40,880—regardless of what markets did.

It’s brilliantly simple and, historically, would have survived most 30-year periods since 1926. But simplicity has a cost:

✗ Forced selling. Pulling the same dollar amount after a 20 % drop means selling low.

✗ Lower “safe” rates today. Morningstar’s newest study suggests starting closer to 3.3 % for 55-year-olds, given today’s muted return forecasts.

Still, for some retirees, the mental freedom of “set it and forget it” outweighs those risks.

HOW TO CHOOSE: MATCH METHOD TO MINDSET

Ask yourself two quick questions:

1. “Do market headlines keep me up at night?”

If yes, the Bucket Plan’s built-in cash cushion might be worth the extra maintenance.

2. “Do I prefer one simple rule I can explain in a sentence?”

Then the 4 % Rule (perhaps adjusted to 3.3–3.7 %) could fit your style.

Remember, either approach can work; failure usually comes from abandoning the plan mid-storm.

YOUR 3-STEP RETIREMENT-INCOME CHECKLIST

1. Map Your Spending Horizon

• Add up essential expenses for the next three years. That sets Bucket 1—or your first-year withdrawal target.\n\n2. Stress-Test Both Methods

• Plug your numbers into an online calculator using the 2000–02 and 2008 bear markets. 

• Compare how long the money lasts under (a) bucket refills and (b) a 3.5 % fixed withdrawal.

3. Talk Tactics, Not Tickers

• Ask your adviser:

 – “If 10-year yields drop to 3 %, how will we keep Bucket 1 beating inflation?”

 – “What guardrails tell us when to raise or trim my paycheck?”

Work through these steps and you’ll shift from headline-driven worry to plan-driven confidence.

A FEW NUMBERS TO KEEP ON YOUR RADAR

• Cash & short-term Treasuries yield about 5 % today—nice, but transient.

• Long bonds sit near 4.4 %.

• Inflation at 2.2 % means real yields are positive…for now. Planning for lower rates later keeps you one step ahead.

CLOSING THOUGHT & QUICK POLL

We hope today’s breakdown turned a potentially nerve-racking topic into a clear, actionable path. Retirement is a journey, and having the right roadmap makes all the difference.

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Thank you for letting us be part of your financial life.

Warm regards,
The Wealth Money Catalyst Team