How much money should I withdraw annually from my portfolio when I retire?

I get that question a lot from friends and family. (Occupational hazard.) It’s also one of the most hotly debated issues in financial planning. Why? First, it’s important; we all hope to live happily in retirement. Second, every person’s situation is unique, so there’s no standard set of spending assumptions for retirement planning. Third, market returns may be mean-reverting over long time periods, but a person’s retirement happens over a specific time period, parts of which may deviate significantly from longer-term average returns that are used to forecast future asset values.

Let’s start with why the question is so critical. Ideally, you’ve been saving for four to five decades to build your nest egg. Now that you’ve stopped working, you want to use that hard-earned money for daily expenses, health care and the things you wanted to do while you were working — like taking a month-long African safari. But you also want to make sure your money lasts until you or your spouse dies, whichever comes later. Often, you want it to last even longer: Many people hope to pass along some of their assets to their children, grandchildren and other loved ones.

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