Columnist pumps some life into an old debate over how much to regularly withdraw from retirement accounts.

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Investing

Q: My question is about the calculation used to determine how much you can withdraw from retirement accounts. I am 68 years old. I have $1 million in deferred retirement accounts.

I want to withdraw all the money over a 20-year period (my assumed remaining life span). This equates to $50,000 per year, or 5 percent annually, which is more than the often-recommended 4 percent.

If I assume I only have 15 more years to live (a more realistic assumption based upon family history), I could withdraw about $66,600 per year, or 6.6 percent annually.

How does this compare to all the assumptions that guide the standard 4 percent “safe” withdrawal rate?

A: The 4 percent withdrawal rate convention is based on the maximum starting withdrawal rate you can have and still be 95 percent certain that your stash will last 30 years while invested in stocks and bonds.

Withdraw more, and the probability of delivering the required money goes down pretty fast. In your case, you will be 98 years old in 30 years. By that time the probability of being dead is 98 percent, which is the other way to solve the income problem.

That 4 percent starting income figure, however, is based on inflation adjusting the original withdrawal every year, so it can’t be compared to a simple, flat annual withdrawal.

The other problem is the consequence of being wrong about how long you will live.

If you pick a departure time 15 years in the future and spend your principal accordingly, not dying timely will cause you great inconvenience.

This is a problem for many readers. They want to make the convenient assumption that they will be among the ones who die early, not among the ones who die late.

But here’s the thing about a life-expectancy figure: It isn’t how long you will live; it is the halfway mark in a distribution.

If you read that your life expectancy is, say, 82 years, it means that half the people in a large group will die before that age. Half will die later.

There are two other problems with this.

First, new research suggests that withdrawal rates need to be much lower today than history indicates because yields are low and stocks are at high valuation levels.

Second, if you happen to have a college education and have enjoyed an above-average (but not gigantic) income, you’ll probably live five years longer than the broad life expectancy tables suggest.

So I have some suggested reading. Not difficult. Fun, actually. Read Somerset Maugham’s short story “The Lotus Eater.”

It can be found on the Web, free, with a simple search. It is the story of a man who aches to retire.

So he takes all his money, buys a term annuity, quits his job and goes to live happily on the island of Capri.

The only problem is that he is unwilling to end his life when the term annuity ends.