Imagine this: you and your partner are stranded on a deserted island with a limited supply of water in a bottle. On a regular daily schedule, a magical genie appears to refill your water bottle, however he has certain rules:

1. You should drink two cups of water a day, enough to sustain yourselves comfortably.
2. He will only add two cups of water to your supply each time he comes.
3. If there is no more water in the bottle he will not add any water at all.
4. If you want, you may drink more than two cups of water, but he will only refill two cups when he appears.

You and your partner follow the genie’s directions and drink only two cups of water a day.  You find that you live well and the genie appears every day to refill the two cups of water.  Life is good and you always have a full bottle of water.

Soon, however, a rare heat wave arrives at the island and it gets much hotter than you can bear.  The heat is so unbearable your heads throb and sweat begins to pour out of each of you like an open faucet.  As your thirst goes through the roof, you realize that you can no longer sustain yourselves sharing two cups of water.  You need to drink more to survive, and you do.  Now, every time the Genie appears, despite the refill, you see the level of water in the bottle slowly diminishing.

Then one day your partner falls ill and his temperature skyrockets.  He needs to drink even more water to hydrate

and to keep the fever down. Without realizing it, and with no other choice, you give your partner the last drops of water from the bottle.  Then it hits you both – no more water.  And, no more Genie!

Imagine if that were you and your loved one on the island.  How would you feel at the moment of realization that things are not going to work out too well for you?  It would probably be devastating, wouldn’t it?

Excess withdrawal risk works the same way as our island friends’ water.  In a perfect world, each time you withdraw funds from your investments for income, your money will replenish itself and grow back to its original level.

Unfortunately, if you begin taking larger withdrawals due to inflation, a down market, or an emergency, your money will not have the time necessary to fully replenish. Like the bottle of water on the island, your money will eventually run dry.  When that happens, your income (your two cups of water) will run dry as well.

Excess withdrawals can hide under your financial radar, until one day you wake up and realize you are about to run out of money.  By then, of course, it’s too late to fix the problem.  Running out of money due to excess withdrawals from your investments will not end as badly as the story, but your life is going to change for the worse.