Retirement Withdrawal Strategies: Annual vs. Monthly, Which Is Better?

One of the biggest questions I hear from retirees is about withdrawal timing. Should you take one large annual withdrawal or spread it out monthly like a paycheck? It’s a simple decision on the surface, but the timing of withdrawals can significantly affect the growth of your retirement portfolio over time.

Let’s look at an example. Imagine starting retirement in January 2014 with a $500,000 portfolio invested in the S&P 500. You plan to withdraw 5% annually $25,000 per year. There are two approaches: withdraw the full $25,000 every January 1st, or withdraw about $2,083 at the start of each month. The results over 11 years are eye-opening.

With the annual withdrawal strategy, you would have withdrawn a total of $275,000 by the end of 2024. Despite market drops in 2018 and again in 2022, compounding still worked in your favor. By the end of 2024, the portfolio value was about $1.29 million more than double the starting balance.

Now compare that to the monthly withdrawal strategy. By spreading withdrawals evenly, more money stayed invested for longer during market upswings. This allowed compounding to work harder. The result? A portfolio value of just over $1.3 million by the end of 2024 about $31,000 more than the annual method. The gap may not seem huge at first, but over decades of retirement, these differences add up.

Monthly withdrawals also provide another advantage: they help mitigate sequence of returns risk. That’s the danger of retiring into a down market and withdrawing large sums early, which can permanently reduce portfolio longevity. By spreading out withdrawals, you reduce the chance of locking in losses when the market dips.

Of course, there’s more than math involved. Many retirees find monthly withdrawals easier to manage because they mimic a regular paycheck, providing consistency and peace of mind. Automatic monthly transfers also simplify cash flow management, while annual withdrawals require careful budgeting. The best approach depends not only on portfolio performance but also on your personal comfort with managing income.

In practice, both methods worked well in this case study both doubled the portfolio in just over a decade while providing steady income. But the monthly withdrawal strategy offered a modest financial edge and more psychological comfort. Small adjustments like this can compound into meaningful differences over the long term.

The bottom line? Whether you choose annual or monthly withdrawals, the key is to stay consistent, rebalance regularly, and adjust for inflation and lifestyle changes. For most retirees, I recommend setting up monthly withdrawals to replicate a paycheck. It keeps more of your money working for you and helps create a reliable rhythm for managing expenses in retirement.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.