The bear market has been particularly cruel for people who just retired and immediately saw their nest eggs chopped nearly in half. The losses may not even be recovered in 10 or 20 years.

The damage highlights a key question most investors face: How much can you afford to withdraw annually from retirement savings? Financial advisers agree that there is no easy answer. Investors who take big withdrawals during a downturn can exhaust savings quickly. Those who delay withdrawals may be belt-tightening needlessly.

Some of the most intriguing approaches to withdrawals have been devised by

Vanguard Group


Charles Schwab

(SCHW) - Get Report

for their managed payout funds. Introduced in the past year, the funds are designed to provide retirees with monthly checks.

In some respects, the Schwab approach resembles what was once called coupon clipping. Decades ago, wealthy families carefully avoided touching their principal. For income, they spent stock dividends and bond interest payments -- or coupons. The strategy worked well in much of the 1940s and 1950s when the dividend yield on the

S&P 500

topped 6%.

But over the years, stock prices rose, and S&P yields fell, hitting a low of 1.1% in March 2000. The skimpy yields discouraged the coupon-clipping strategy and caused investors to focus on achieving capital gains. In recent years, many financial advisers have told fund clients to reinvest dividends and sell shares to cover expenses.

Now that stocks have collapsed, the yield on the S&P 500 is back above 3%. Retirees can again consider living on dividends, and the old coupon-clipping strategy has found new life in

Schwab Monthly Income Fund--Moderate Allocation

(SWJRX) - Get Report

. The fund invests in a portfolio of stock and bond funds. Stock dividends and bond income are paid out to shareholders who may choose to leave the principal untouched. The fund's current yield is 3.8%.

Since the fund began operating in March, the share price has dropped from $10 to $8.03. But retirees relying on Schwab for income may not feel the need for belt-tightening. While the share price has fallen, the payouts have climbed as stock yields increased. The monthly dividend payments per share have risen from 3 cents over the summer to 3.2 cents now.

Schwab has been able to maintain the income stream by owning a diversified mix of foreign and domestic dividend-paying stocks as well as bonds. Holdings range from Treasury securities to foreign real estate investment trusts, or REITs. "The yields are upwards of 10% on Australian REITs," says Jeffrey Mortimer, chief investment officer of Charles Schwab Investment Management. "As the market gives us more yield, we can increase the payout to shareholders."

Like the Schwab payout fund,

Vanguard Managed Payout Growth

(VPGDX) - Get Report

owns a diversified portfolio of stocks and bonds. But instead of automatically paying out stock dividends and bond interest payments, the fund distributes 5% of assets annually.

The fund pays the same percentage each year, regardless of how markets perform. The monthly payments can be supported by stock dividends. But if necessary, Vanguard may be forced to sell holdings to maintain the fixed payments. To make the monthly payments this year, the Vanguard fund had to dig into principal, giving shareholders a return of their capital.

For long-term investors, either the Schwab or Vanguard funds can be effective. But there are clear differences. Many advisers prefer reinvesting dividends as the Vanguard fund does. At the beginning of each year, Vanguard determines payments and sends out the same-sized check for the next 12 months. The following year, the payments are again adjusted based on the fund's asset values.

In a similar manner, advisers prefer to adjust monthly payments every year or two. Say a client has a portfolio of $1 million and the adviser wants to pay out 4% of assets annually. During the first year, the client would receive $40,000 spread over 12 months. If the portfolio shrinks to $800,000, then in the second year, the adviser might only pay out 4% of the reduced total, or $32,000. In this Vanguard-style approach, the client can prepare a budget because he knows in advance how much the monthly checks will be.

An investor using the Schwab-style strategy may have more trouble preparing a budget. As dividends vary, payments can change every few months. But in a bear market, those following the coupon-clipper approach can have some peace of mind. By seeking to live on dividends and interest payments, the investor avoids digging into principal. That could enable a retiree to preserve his nest egg for years.

Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.