U.S. stock markets are off to a volatile start this year after a stellar 2024, and Morningstar suggests that retirees might want to plan for modest returns in the future and adjust the withdrawal strategy for their retirement funds.

According to a recent Morningstar forecast, retirees could safely withdraw 3.7% from their nest egg in 2025 as a starting point, much lower than the 4%🌳 that a popular rule of thumb recommends.

The 4% rule suggests building a retirement plan in a way such that if you withdraw 4% of your retirement savings funds in the first year, and thereafter adjust the withdrawal amounts for inflation, you won't run out of money for a 30-year retirement period.

Running out of money in retirement is 澳洲幸运5官方开奖结果体彩网:a big worry for many Americans, and experts say that having withdrawal strategy for funds during retirement is 澳洲幸运5官方开奖结果体彩网:almost as important as saving for retirement.

For many, thinking of withdrawals starts from a rule of thumb known as the 4% rule but that may not necessarily work. Here's why and what experts recommend to do instead.

Why Ditch the 4% Rule?

Those who peg their initial withdrawal rate at 3.7% in 2025—while annually adjusting for inflation after that—and would have a 90% chance of not running out of money during a 30-year retirement, according to Morningstar. This withdrawal rate was based on portfolios with 20% to 50% allocated toward stocks and the rest in bonds and cash. 

At the end of 2023, Morningstar had recommended a higher withdrawal rate of 4%, so why should investors be more conservative with their withdrawal rate nꦜow? 

The researchers expect high equity valuations to dep♓ress future returns and the Federal R൩eserve’s rate cuts to reduce yields.

"The decrease in the withdrawal percentage compared with 2023 owes largely to higher equity valuations and lower 澳洲幸运5官方开奖结果体彩网:fixed-income yields, which result in lower retur💛n assumptions for stocks, bonds, and cash over the next 30 years," the researchers wrote.

澳洲幸运5官方开奖结果体彩网:Analysts at Vanguard alsoꦰ have warned of lower futurꦫe stock market returns for long-term investors.

Consider a Flexible Withdrawal Strategy

Some retirees could benefit from taking a more dynamic app𒐪roach to withdrawal by accounting for factors like market performance or age.

Ted Braun, senior vice president and a financial advisor at Wealth Enhancement Group, said that a fixed withdrawal rate can be a useful starting point, but that his clients often 澳洲幸运5官方开奖结果体彩网:adjust their withdrawal rates based on their needs or the market.

“There are going to be years where you pull out 6%, 7%, or 8% because your child gets married or you're buying a house,” Braun said. “But then there's also going to be years where you have a tremendous return, like this year, and if you haven’t adjusted the 澳洲幸运5官方开奖结果体彩网:withdrawal rate, you're probably taking 2 or 3%." 

While a fixed withdrawal rate can ensure steady annual cash flow, one of its biggest downsides is that your money could outlast your retirement. That's great news if you want to leave money to your heirs, but you could have enjoyed that money, too, if you'd withdrawn more.

A flexible strategy like the guardrails approach—where you may adjust your withdrawal rate upward or downward based on 澳洲幸运5官方开奖结果体彩网:market performance—would mean🥀 more fluctuations in your spending from year-to▨-year and less leftover money.

Rely on Social Sec𒆙urity, Bond Ladders To Stretch Your Dollars

Most retirees receive guaranteed income as 澳洲幸运5官方开奖结果体彩网:Social Security, but Morningstar notes that annuities and even 澳洲幸运5官方开奖结果体彩网:Treasury Inflation-Protected💯 Securiꦆties (TIPS) are types of 🥀guaranteed income that, when used strategically, can help boost people's ability to s🌌pend in retirement.

The decision of when to collect Social Security can have a big impact on your standard of living in retirement. While delaying taking Social Security benefits past full retirement age (which is between age 66 and 67) may result is larger monthly checks, it may not be an option for some people who need those funds sooner. Even for those who expect to live longer, delaying may not be beneficial—if you have to tap 澳洲幸运5官方开奖结果体彩网:other retirement accounts bꦜefore you hit age 70, this could result in ♛a smaller nest egg down the line.

A 30-year TIPs ladder with staggered maturities could be another option for regular income, according to Morningstar. With a TIPs ladder, investors would use the maturing bonds and 澳洲幸运5官方开奖结果体彩网:coupon payments to fund their spending. Alಌthough TIPS are low-risk and would protect against inflation, this strategy can be inflexible and would result in exhaustion of the entire retirement fund after 3༒0 years.

David Rosenstrock, CFP and founder of Wharton Wealth Planning, is a fan of diverisified 澳洲幸运5官方开奖结果体彩网:bond ladders for retirees.

“When thinking about ♋ladders, you also want to think about diversification, not only in maturity, but also in the type of security—so that could be TIPS, corporate bonds, fixed government bonds, or municipal bonds,” Rosenstrock said. “Based on the shape of the interest rate curve, you don’t get too much compensation from longer-dated bonds … it’s safer to be in the one- to nine-year range.”