Q. I retired a couple of years ago after acquiring enough wealth to live on comfortably for the rest of my life and probably have something left for my children. However, with the current bear market I feel that may no longer be the case. Before the bear market, I was withdrawing from my retirement at a rate of 4 percent per year. Even at the beginning of this year, I was withdrawing at a rate of about 4.5 percent. However, I now have to withdraw at a rate of about 5.5 percent.

Should I continue to wait out the bear market in hopes that the equity market will recover? Or should I start downsizing to reduce spending back to the 4 percent withdrawal rate? I am reluctant to downsize because this will undoubtedly mean selling my home, which my wife loves, and finding smaller/cheaper housing. I see no other expenditures that can be reduced enough to return to the 4 percent rate.

---R.W., by e-mail from Flower Mound, TX


A. Your situation is troubling---but it is not a disaster. I think there are two things you need to do. The first is to climb the learning curve on the relationship between withdrawal rates and portfolio survival.

Fortunately, this is a lot easier today than it was five years ago. When I first wrote about this, giving the details of a study about withdrawal rates and portfolio survival done by three researchers at Trinity University, all we could do was stare at complicated tables of numbers.

Since then there have been two very nice events. John P. Greaney, an engineer who retired early, created the Retire Early Home Page, http://www.retireearlyhomepage.com. On it, he offers a free software download that would allow individuals to put in hypothetical portfolios and test them for long-term survival.

Mr. Greaney continues to add new tools to his website. For instance, he incorporated TIPS (Treasury Inflation Protected Securities) as an asset choice in the same calculator. He found that they work to increase the odds of portfolio survival. I think this is a great website--- it's a prime example of high quality, independent effort.

For readers who don't feel comfortable downloading a compressed Excel spreadsheet full of macros, decompressing it, and then playing with variables, another early retiree has taken the same spreadsheets and converted them to an application that works directly on the web. You can get to it from the Retire Early Home Page or by going directly to http://capn-bill.com/fire/.

There you can fill in your portfolio composition (stocks and bonds), your starting withdrawal rate, whether you want to increase your income by the CPI or PPI, the annual cost of managing your portfolio, and the period of time you wish to consider. It will then calculate the odds your portfolio will survive.

I found, for instance, that a portfolio with 75 percent equities and 25 percent 5 year Treasuries, with an annual expense of 0.18 percent and a withdrawal rate of 4.0 percent had a 99.2 percent chance of surviving for 30 years. Increasing the withdrawal rate to 5.5 percent a year reduced the survival rate to 73.1 percent. When the withdrawal hits 8 percent the survival rate is only 36.2 percent.

So your situation could be a lot worse.

The second thing you can do is have contingency plans in the event this bear market wears on.

•   First, you can squeeze your spending, knowing that each squeeze   increases your portfolio survival rate. In addition, research   has shown that retiree spending tends to decline after age 72.   So nature may provide some help in later years.

•   Second, you can plan for an eventual sale of your house,    knowing that when you are older the house may be too much to    manage.

•   Third, you can consider raising your current income by   converting a portion of your investment assets to a life annuity.   Visiting a site devoted to life annuities,   http://www.immediateannuity.com, I found that a 65-year-old woman   could get an average life income, guaranteed for 20 years or her   life (whichever was longer) at an annual rate of 7.7 percent. This   is a representative quote, not a specific quote.  Some companies   may offer higher rates. If you make this choice, the annuity   income will work to reduce the withdrawal rate from the remainder   of your portfolio for a period of time. This will increase your   portfolio survival odds.