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Fixed Dollar Amount

Pick a dollar amount and withdraw exactly that much every year, no adjustments for inflation or market performance.

How It Works​

The Fixed Dollar method is the simplest possible withdrawal strategy. You decide on a specific dollar amount — say $40,000 per year — and withdraw exactly that number every year of retirement. The amount never changes regardless of what happens to your portfolio or the cost of living.

This approach predates formal safe withdrawal rate (SWR) research. It is essentially how many pensions and informal retirement arrangements have always worked: someone picks a number and sticks with it. There are no formulas to track, no recalculations, and no decisions to make after the initial one.

The obvious downside is inflation. At 3% annual inflation, your $40,000 withdrawal has the purchasing power of roughly $29,600 after ten years and $21,800 after twenty. For retirees with long time horizons, this erosion can be severe. The method also ignores portfolio performance entirely, so a withdrawal amount that seemed reasonable at retirement could drain the portfolio during a prolonged downturn or leave a large surplus after a bull market.

The Formula​

Year 1:

withdrawal = fixedAmount

Year 2+:

withdrawal = fixedAmount   (unchanged)

Key parameters:

  • Fixed amount: The dollar amount chosen at retirement (e.g., $40,000)
  • Inflation adjustment: None — this is the defining characteristic

Pros & Cons​

Advantages:

  • Extremely simple to implement — no calculations after Year 1
  • Predictable nominal income makes budgeting straightforward
  • Easy to explain to a spouse or financial advisor
  • No annual recalculation or market monitoring required

Limitations:

  • Purchasing power erodes with inflation every year
  • Ignores portfolio performance — no adaptation to good or bad markets
  • Risk of running out of money if the fixed amount is too high relative to returns
  • Risk of leaving too much on the table if the amount is too conservative
  • Not suitable for long retirements without supplemental income

Example​

Starting portfolio: $1,000,000 | Fixed withdrawal: $40,000/year | Inflation: 3%/year

YearPortfolio (start)WithdrawalReal Value of WithdrawalNotes
1$1,000,000$40,000$40,000Full purchasing power
5$1,050,000$40,000$35,500Inflation has eroded 11%
10$1,020,000$40,000$30,600Purchasing power down 24%
20$890,000$40,000$22,800Purchasing power down 43%
30$650,000$40,000$16,500Less than half the original value

Notice that while the nominal withdrawal never changes, by Year 20 it buys 43% less than it did at retirement. A retiree who needed $40,000 in today's dollars would need roughly $72,000 by Year 20 to maintain the same standard of living.

When to Use This Method​

The Fixed Dollar method works best for retirees who:

  • Have a short retirement horizon (under 10 years) where inflation erosion is manageable
  • Want the absolute simplest approach with no annual decisions
  • Have other inflation-adjusted income (Social Security, pension) covering most expenses
  • Are using the fixed withdrawal only for discretionary spending

Consider an inflation-adjusted method (like the 4% Rule) or a dynamic method (like Guyton-Klinger) if you have a longer horizon or if portfolio withdrawals are your primary income source.

Try It Yourself

Compare Fixed Dollar against other strategies using your own numbers in the Scenario Builder.

References​