By Scott Burns

Q. Withdrawal of 4 percent plus the inflation rate of your retirement portfolio is considered a reasonable amount upon retirement. Say inflation is 2 percent. Does this mean that you can withdraw 4 percent plus 2 percent, or 6 percent, of the total portfolio for that year?— R.R., Nashville, TN

A. That isn’t how it works. The safe withdrawal rate is grounded in the amount of income you withdraw on your first year of retirement. That amount is then increased each year for the increase in consumer prices.

Here’s an example: Suppose you have just turned 65 and want to retire. You also have a $500,000 retirement nest egg, most of it in tax-deferred retirement accounts such as an IRA rollover account. In the first year you can withdraw 4 percent of that $500,000 or $20,000. During the year the CPI rises by 4 percent. This means you will withdraw at an annual rate of $20,800 in your second year of retirement— $20,000 plus $800 as an inflation adjustment. Each year after that you will increase the amount withdrawn by whatever the inflation rate was during the year.

Note that I have not mentioned the value of the account after the initial year. What you withdraw is unrelated to changes in the value of the account. So if the account rises by 10 percent, you don’t increase your withdrawal accordingly. Similarly, if the account drops by 20 percent, you don’t reduce your withdrawal accordingly. You always base your withdrawal on your initial dollar amount adjusted by the rate of inflation.

This method can have a destructive effect on your savings in a major bear market. Suppose, for instance, you start with $500,000 and the value of your account drops by 30 percent during the year, ending with $350,000. If you increase your withdrawal by the 4 percent inflation rate from the original $20,000, you will be taking money out of the account at a rate of nearly 6 percent. Do that for several years and your nest egg may never recover to its original value. Using this method, however, researchers have found that during most periods of time, retirement portfolios have provided retirement spending for 30 years when started at a 4 percent withdrawal rate.

You can improve the odds that your portfolio will survive with a few simple changes. The easiest is to avoid increasing your withdrawal in any year that the value of your account has declined. You’ll find a lot more information on this subject in the column archive on my website. Look in the category “portfolio survival.” You can experiment with different distribution amounts by visiting the website, www.firecalc.com.

Q. Am I too old and too late to open a Roth IRA account? I will be 64 in September. I am retired, receiving a pension, but also am drawing about $19,300 of Social Security yearly. My husband is still working. He is NOT drawing any Social Security. Our combined modified adjusted gross income is about $125,000. We file a joint tax return. I have been told that I can still open a Roth Ira, but the amount I could contribute to it would be based on a certain percentage of the SS payment I get. Is this correct? If so, where would I find out what that percentage would be, and as a soon-to-be-64, would this be a wise account to open? —J. M., Grand Prairie, Texas

A. Since you and your husband file a joint tax return, you can open a Roth IRA and contribute $5,000 plus and additional $1,000 allowed as "catch up" for people 50 and over. Your contribution amount would not be determined by the size of your Social Security benefit. If you were single (or just filing separately) you would not be able to contribute to a Roth IRA because they are geared to compensation income. A non-working spouse in a couple that files a joint return, however, can contribute to a Roth IRA if his or her spouse is working.

If you don't need the income today, saving after-tax money in a tax-free account is a good idea. While you can't take money out of these accounts for a period of time, the option of taking tax-free income at a later date can be very helpful, particularly when you are forced to take Required Minimum Distributions from regular IRAs.