.svg)
For decades, the “4% rule” was considered a simple way to ensure your savings lasted through retirement. Withdraw 4% of your portfolio each year, adjust for inflation, and you should be fine. But as the economy, markets, and lifespans have evolved, many retirees and planners are rethinking this long-standing rule of thumb.
Today’s retirement environment looks very different. Inflation has been higher and more unpredictable. Markets are more volatile. Interest rates and healthcare costs are shifting. And retirees are living longer than ever before, which means portfolios need to stretch across potentially 30 or more years.
A recent survey from the Financial Planning Association (FPA) found that nearly 47% of planners say their clients’ biggest retirement fear is outliving their savings [1]. That fear is understandable. The traditional retirement model—working full-time until 65, then relying solely on investments and Social Security—has become less reliable for many.
This article explores how retirees can think beyond the 4% rule and create a flexible, diversified income strategy that aims to support financial stability through changing markets and a longer life expectancy.
Why Your Withdrawal Strategy Matters
The amount you withdraw from your portfolio each year is one of the most important decisions you’ll make in retirement. Withdraw too much, and your retirement savings may not last. Withdraw too little, and you may limit your quality of life unnecessarily.
Several factors influence how much you can safely withdraw:
• Longevity: People are living longer, meaning your retirement income might need to last 25 to 30 years—or more.
• Market volatility: Portfolio values fluctuate, and withdrawing during a downturn can deplete assets faster.
• Inflation: Rising costs of living, especially healthcare, can erode purchasing power over time.
• Tax considerations: The sequence in which you draw from different account types (taxable, tax-deferred, Roth) can affect how long your retirement savings last.
A withdrawal strategy is not just about math. It’s about flexibility—adjusting to changes in the economy, your health, or your goals.
The 4% Rule: A Starting Point, Not a Solution
Where the 4% Rule Came From
The 4% rule originated from a study in the 1990s that analyzed historical stock and bond returns. The finding: if you withdrew 4% of your portfolio in the first year of retirement and adjusted for inflation each year, your retirement savings could last roughly 30 years.
For example, if you retired with a hypothetical $1 million, you would withdraw $40,000 the first year. Each year after, you’d increase that amount slightly to account for inflation.
Why It Might Not Work the Same Today
While this approach provided a useful benchmark, the environment it was built on has changed significantly.
• Longer retirements: Many retirees now spend 25–35 years in retirement, stretching portfolios further than before.
• Lower expected returns: Bond yields and stock market growth may not match historical averages used in earlier studies.
• Higher inflation: Rising living costs can quickly outpace conservative withdrawal strategies.
• Sequence of returns risk: If markets decline early in retirement and withdrawals continue, portfolios can suffer long-term damage.
Because of these realities, some financial professionals suggest that a static 4% rule may not be flexible enough. Instead, retirees might consider adaptive withdrawal strategies that respond to market conditions and spending needs.
Flexible Approaches to Retirement Withdrawals
1. Variable or “Guardrail” Strategies
Instead of sticking to a fixed percentage, variable withdrawal approaches adjust spending based on market performance. For example:
• Withdraw slightly less when markets are down.
• Withdraw a bit more when markets perform well.
The goal is to protect your portfolio during downturns while still allowing for lifestyle improvements in strong years.
Guardrail strategies often set “spending boundaries”—for example, allowing withdrawals to fluctuate between 3% and 5% of your portfolio. These plans can add resilience to long-term income.
2. The “Bucket” Approach
This strategy divides retirement assets into segments based on time horizon:
• Short-term bucket: Cash or short-term bonds for 1–3 years of living expenses.
• Medium-term bucket: Conservative investments for the next 3–10 years.
• Long-term bucket: Growth investments (like equities) for the later years of retirement.
This structure allows retirees to fund near-term expenses while keeping long-term assets invested for growth potential.
3. Dynamic Withdrawal Plans
Some retirees use withdrawal plans that automatically adjust based on portfolio performance. For instance:
• Set a spending ceiling and floor (e.g., never withdraw more than 6% or less than 3%).
• Review the plan annually and adjust spending if portfolio growth or losses exceed certain thresholds.
These approaches can help smooth income while reducing the risk of depleting assets during extended market downturns.
Beyond Portfolio Withdrawals: Building Multiple Income Streams
Diversifying income sources can add both stability and confidence to your retirement plan. Rather than relying solely on investment withdrawals, consider combining several income streams.
1. Social Security Timing
The age at which you claim Social Security benefits can significantly affect lifetime income. While you can begin collecting at age 62, waiting until your full retirement age—or even up to age 70—can increase monthly benefits. The best choice for you depends on factors such as health, marital status, and other income sources.
2. Part-Time Work or Phased Retirement
More retirees are choosing to work part-time or transition gradually into retirement. According to a recent analysis from UMA Technology, flexible retirement arrangements are gaining popularity as people look to stay active, engaged, and financially secure [3].
Even modest earnings can reduce the need for early portfolio withdrawals and allow investments more time to potentially grow.
3. Annuities for Predictable Income
Some retirees may consider incorporating an annuity to provide a steady income stream that’s not tied to market performance. Options vary widely—ranging from fixed to variable products—and each comes with specific costs and benefits. The key is understanding how an annuity fits within your broader income strategy.
4. Dividend and Interest Income
Well-structured portfolios can include investments that generate regular income through dividends or bond interest. This can help supplement withdrawals without reducing principal too quickly.
5. Real Assets and Rental Income
Real estate or other tangible assets can provide additional diversification and potential inflation protection. Rental income can be valuable, but it also involves management responsibilities and market risk.
How to Build a Withdrawal Plan That Fits Your Life
A sustainable withdrawal strategy starts with understanding your spending needs and adjusting as your life evolves.
Step 1: Define Your Core and Lifestyle Expenses
Separate essential expenses (housing, food, healthcare, insurance) from discretionary ones (travel, hobbies, entertainment). This helps identify where you can adjust if markets fluctuate.
Step 2: Run “What-If” Scenarios
Work with a financial professional to stress-test your plan under different conditions:
• Market downturns
• High inflation
• Longevity beyond 90 or 95
This helps reveal potential shortfalls early, when adjustments are easier.
Step 3: Plan for Flexibility
Consider building a reserve fund or “cash buffer” to cover one to two years of expenses. This allows you to avoid selling investments during downturns.
Step 4: Review Annually
Your plan shouldn’t be static. Revisit your withdrawal rate, income sources, and expenses each year to make sure everything remains aligned with your goals and current conditions.
Step 5: Coordinate Tax Strategy
The sequence of withdrawals across taxable, tax-deferred, and tax-free accounts can impact your long-term success. Thoughtful tax strategies can help improve after-tax income and extend portfolio longevity.
Key Takeaways
• The 4% rule can serve as a general starting point, but it may need to be adapted for today’s longer retirements and changing market conditions.
• Building multiple income streams—Social Security, annuities, dividends, part-time work, and portfolio withdrawals—can add resilience and peace of mind.
• Flexibility is key. Plans that can adjust to market performance and personal needs tend to fare better over time.
• Regular reviews and proactive tax strategies can help improve your retirement income efficiency.
Conclusion
Creating reliable income in retirement is about more than following a single formula. It’s about building a dynamic, adaptable strategy that reflects your personal goals, risk tolerance, and life expectancy.
By blending multiple income sources, reviewing your plan regularly, and staying flexible as conditions change, you can better navigate the uncertainties of a longer retirement horizon.
If you’re unsure whether your current withdrawal plan is sustainable, consider meeting with a financial planner who can help you evaluate different strategies and stress-test your income plan. Small adjustments today can help improve financial confidence and provide stability for the years ahead.
Sources
1. National Reverse Mortgage Lenders Association (NRMLA), “Financial Planning Association Publishes Retirement Readiness Report,” May 2025.
2. Nasdaq, “5 Biggest Financial Worries for Retirees in 2025 and How You Can Address Them,” June 2025.
3. UMA Technology, “New Trends in Retirement Planning for 2025,” July 2025.
Disclosures:
Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. Investing involves risk which includes potential loss of principal. Past performance is not a guarantee of future results. The use of asset allocation or diversification does not assure a profit or guarantee against a loss.
All numeric examples and any individuals shown are hypothetical and were used for explanatory purposes only. Actual results may vary.
Neither OneAmerica Securities, the companies of OneAmerica Financial, Fuller Financial, nor their representatives provide tax or legal advice. For answers to specific questions and before making any decisions, please consult a qualified attorney or tax advisor.
Not affiliated with or endorsed by the Social Security Administration, the Centers for Medicare & Medicaid Services, or any governmental agency.
