How Fixed-Amount Withdrawals Work and Their Risks
Fixed-amount withdrawal means drawing a set sum every month or year. For example, withdrawing 15 man-yen per month from 3,000 man-yen in assets without any investment return depletes the funds in about 16 years and 8 months. Investing at 3% annual return while withdrawing extends the lifespan to roughly 23 years, but continuing to withdraw a fixed amount during market downturns accelerates asset depletion - a phenomenon known as sequence-of-returns risk.
If a major crash occurs right after retirement, fixed-amount withdrawals cause assets to shrink rapidly, making recovery extremely difficult. For instance, if 3,000 man-yen drops 30% to 2,100 man-yen in the first year and you withdraw 180 man-yen, the remaining balance is 1,920 man-yen. Even if the market subsequently recovers, returning to the original 3,000 man-yen takes a very long time.
Extending Asset Life with Percentage Withdrawals
Percentage withdrawal means drawing a fixed percentage of the remaining balance each year - for example, 4%. When assets grow, the withdrawal amount increases; when they shrink, it decreases. This dramatically reduces the risk of running out of money. In theory, assets never reach zero under a percentage method because the withdrawal amount keeps getting smaller.
The well-known "4% rule" involves withdrawing 4% of your assets in the first year of retirement and adjusting subsequent withdrawals for inflation. The idea comes from the "Trinity Study," published in 1998 by researchers at Trinity University in the U.S.: using U.S. market data from 1926 to 1995 for a portfolio of 50% stocks and 50% bonds, the original analysis found that assets survived the full 30 years in more than 90% of the periods examined. That share is not a probability of future outcomes but a figure drawn from historical data, so under Japan's low-interest-rate environment or a different asset allocation, it is more prudent to plan around a rate of 3 to 3.5%.
A Flexible Withdrawal Strategy in Practice
In reality, a hybrid of fixed-amount and percentage approaches is the most practical. Cover essential living expenses with pension income and savings, and use percentage-based withdrawals from your investment portfolio for discretionary spending. In good market years, withdraw more and enjoy a comfortable lifestyle; in downturns, minimize withdrawals and let your assets recover.
Our simulator lets you input your withdrawal period, withdrawal amount, and expected return to visualize how your assets evolve over time. Try different scenarios to find the withdrawal strategy that works best for you.