Usual take on "safe" withdrawal rates may not be suitable to every retiree. A phased income strategy for retirement planning often allows for more flexibility, larger early-retirement withdrawals, and more upfront spending, according to an article in this month's Journal of Financial Planning.

"Most affluent retirees will want to spend more money in the early retirement years," Charles Robinson, head of investment products and services at Milwaukee-based Northwestern Mutual, writes in the journal article A Phased-Income Approach to Retirement Withdrawals. "Yet the traditional method generates the same amount of real income throughout retirement --even in worst-case economic scenarios."

More, earlier

The traditional method of withdrawal planning, which stresses caution early in retirement, often leaves retirees feeling like they can't enjoy things, such as travel, that they'd wanted to make a part of their first retirement years. The phased income approach, whose basic principles can be used by affluent and lower-income retirees alike, takes the opposite tack by allowing for more discretionary spending upfront.

The phased approach takes potential health care costs and long-term care premiums into account, then factors in essential living costs. Income needs and potential annuities are incorporated for living between the ages of 85 and 95, and the "remaining assets in the retirement portfolio are then used to fund twin ten-year income bridges for ages 75 to 85, a period when spending typically slows down, and the most expensive and active stage of 65 to75," writes Robinson.

Using this strategy under a test scenario, Robinson finds that retirees didn't run out of money, and they were able to enjoy the benefits of greater income in their early retirement phase, often withdrawing between 1% and 6% more than the typical cautionary rates. -FWR

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