How much can you withdraw annually from your investment portfolio in retirement without ever running out of money? For more than two decades, 4% has been the widely accepted rule of thumb, assuming that you have a classic retirement asset allocation of half stocks and half bonds. But with inflation rising, plus the possibility of a recession and bear market in the next few years, you need to make some tweaks…

Start with the original approach. During the first year of retirement, withdraw 4% of your portfolio. Every following year, withdraw the same initial dollar amount plus an increase for inflation. Example: If you have a $1 million portfolio, you withdraw $40,000 the first year…and if inflation that year is 3%, then the next year you withdraw $40,000 plus 3% of $40,000 ($1,200) for a total withdrawal of $41,200. You repeat these steps, using the previous year’s total withdrawal and inflation rate, every year.

Veer from the original approach if your portfolio has a very bad or very good year. How to do it: At the end of each year, divide the total amount of that year’s withdrawals by the current value of your portfolio to get a percentage. If the withdrawals totaled 5% or more of the current value of the portfolio, you’re in danger of burning through your savings too quickly, so you should reduce your total withdrawal amount for the next year to 4% of the portfolio’s current value (instead of 4% of the original value) plus the usual adjustment for the previous year’s inflation.

Example: Say that during the second year of retirement, you withdrew $41,200 based on your initial 4% amount plus the previous year’s inflation. But at the end of that second year, you see that your portfolio value has dropped to $800,000. That means your withdrawals added up to 5.15% of the portfolio’s current ­value—too much! So in the coming (third) year, withdraw no more than $32,000 (4% of the current portfolio value) plus a boost for inflation based on the inflation rate in the second year.

On the other hand, if your withdrawal amount over the past year came to 3% or less of the current value of your portfolio, you could splurge and take out more money in the third year using the same 4% formula—meaning, 4% of the current value of the portfolio plus an extra amount based on the previous year’s inflation.

With these adjustments each year, over a 35-year period you would have greater than a 95% chance of not running out of money, based on historical returns of stocks and bonds.

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