The 1/N strategy is a straightforward rule that determines your yearly withdrawal with the equation:
For example, if you estimate a 30 year retirement and start with $1,000,000, then your first year withdrawal will be
$1,000,000 / 30, or
Later on, if we assume that you have $250,000 in your portfolio with 2 years remaining, then your annual withdrawal would be
$250,000 / 2, or
- Ensures that you spend every available dollar
- Never prematurely runs out of money
- Tends to spend more money toward the end of your retirement than at the beginning.