How Much Can You Spend in Retirement? A Smarter Take on the 4% Rule

In today’s episode, we’re tackling these topics:

🔄 Retirement spending should be dynamic, not static

🧱 Diversification and flexible withdrawal strategies help weather market downturns

🛫 A “runway” of preservation assets (cash/bonds) buys time during volatility

🔧 Rebalancing and spending flexibility are critical to long-term success

💬 Planning should be annual, adaptive, and personalized—not one-and-done

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The Smart Take:

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

How much can you safely spend in retirement without running out of money? For years, many people have relied on the 4% rule, but markets, portfolios, and retirement itself have all changed. In this episode, we’ll walk you through the new research that updates the 4% rule and explain what really determines sustainable spending throughout your retirement.

Walter Storholt:

Hey, it’s another Retire Smarter podcast. Walter Storholt is always joined by Tyler Emrick, certified financial planner at True Wealth Design, also a chartered financial analyst, and you can find us online at truewealthdesign.com. Great conversation on the way today as we talk about that old 4% rule that I guess isn’t 4% anymore, Tyler. That’s the big headline here as we go into 2026.

Tyler Emrick:

It is, it is. Yeah, I’ve got a little bit of update to the rule. I mean, I don’t care who you are. If you’re thinking about retirement or in retirement, you’re probably always thinking about spending. How much do I got? Do I have enough? And boy, I’m sure most of the listeners and viewers on YouTube here have heard about that 4% rule. Seems to be pretty widely published, right?

Walter Storholt:

Yeah.

Tyler Emrick:

Who was that, Walt? As I always mispronounce Bill Bengen’s last name.

Walter Storholt:

Yeah. William or Bill Bengen, I believe is the pronunciation of the last name. He’s the guy that came up with this whole deal back in the ’90s, right?

Tyler Emrick:

He did, he did. Yep. Well, generally speaking, most individuals that can think about it or have thought about it in the fact of like, “Well, hey, if I take a look at all the retirement assets that I have, my IRAs, my 401(k)s, other taxable brokerage accounts, all that good stuff, add them all up, take 4% of it. That’s a good rule based off of this rule of thumb. That’s a good rule to tell you how much you could safely withdraw from that money over the course of your…

Walter Storholt:

I shouldn’t run out of money is the idea, right?

Tyler Emrick:

Correct, correct. Now, over time, if any longtime podcast listeners, we’ve done many podcasts on the 4% rule and some of our issues with it. So, we wanted to dive in today and just talk a little bit about the 4% rule, our thoughts on it, and how retirees should be thinking about sustainable spending throughout their retirement, and try to help them just wrap their arms around like, well, what is a good number or how can you start to think about what is, again, sustainable throughout retirement? So, what prompted all this was Bill actually updated the 4% rule and he came out with a new book. I actually got the title right here. Yeah.

It’s a richer retirement, supercharging the 4% rule to spend more and enjoy more. And he suggests that, “Hey, the new rule, we’re going to be a little under 5%. It’s going to be 4.7%.” So, I don’t know if that still has the same ring to it, Walt as the 4.7% rule, but that is what the update is.

Walter Storholt:

I don’t know Bill at all, right? But I want to be cynical just for a moment. I love the business model, right? Although he has taken a long time to do it, but what a great business model. Let me invent a rule and throw it out there, but then let me update it every once in a while so I can sell more books and get some… Because he’s been on a publicity tour and a media tour talking about the changes. And so, I’m like, “Hmm, I’m going to come up with the something percent rule and then like university textbooks and it’s like volume 82.” It’s like, okay, so you just change a few words in this book every year, update a few stats and it’s the new volume and you get to sell all new additions.

Tyler Emrick:

Yeah. Hey, Walt, if you can come up with something as sticky as the 4% rule, boy, I’m on an autograph and I’m going to be happy with that. We can talk about it. Yeah.

Walter Storholt:

We’re going to work on this. We’re going to work on this. We’ll call it the Tyler and Walter rule and we’ll figure something out here for a percentage. We’ll think of some metric that makes sense.

Tyler Emrick:

No, but he does cite a few things as, “Hey, what’s changed? Why the update?” And he did list out a few high level reasons for the update. One would be more diversified portfolio beyond just large cap stocks and bonds. Of course, the investing landscape and the opportunity set that you have from an investor has probably never been as broad as we have today, right? Just think about all the industry changes of, hey, your old stock picker call Merrill Lynch guy and say, “Hey, what’s a good stock for today back in the ’90s and gone all the way up through changes in the mutual funds and ETFs and interval funds and hedge funds and all these fancy wrappers and types of investments that you can choose to put your money in.”

So, we have never had more access to markets and investments as we do now. So, more diversification. Expanded historical data and asset classes. I think when he had originally done some of the work, he didn’t take into consideration small companies, big companies, large companies, which I think basically the premise that he used for some of the historical return performance, international stocks. So, this expanded historical data set he mentions. And then the third would be just a broader view of historical returns and allocation effects. Again, I just think this is him trying to refine his process and like you had said, given the update to sell more books.

And I think I mentioned this a little bit earlier here in the podcast, but I did mention that, hey, we’ve talked about the 4% rule and we certainly have a little bit of issues with it and just using as an oversimplified approach to your retirement. Now, Walt, wherever we can, we subscribe to the KISS theory, right? Keep it simple, stupid, very, very much believe into it. But I think the 4% rule maybe goes a little bit too far.

So, what we want to do is talk about just a couple high level points to reframe, thinking about the 4% rule, why we might have a little bit of qualms with it and how listeners should be thinking about sustainable withdrawal rates as they think about their retirement, their assets, and how they should be withdrawing assets from them. So, I think it’s pretty key to start out with that, keep in mind the rule isn’t necessarily about predicting returns. It’s not necessarily saying, “Hey, you’re always going to average 4% return on your money, so you’re just pulling off the earnings.”

But I think the rule at its core was really set to say it’s more about surviving bad sequences or bad return time periods because if anybody here listening was retiring around 2008, the great financial crisis, or I would even argue maybe even early in COVID that first month, although the market did pop back pretty quickly, the sequence of the returns that you get on your money really directly impact that sustainable withdrawal rate. So, that’s the first key point that we want to think about is when you retire matters and what type of returns that you get on your investment allocation matters, especially, especially early in retirement.

You could look at two retirees and take a 10-year time period and say, “Hey, they both have averaged 4% return per year, but they could have wildly different outcomes, depending on how much volatility there was early in those retirement years.” I mean, you think about it. I mean, you stop working, paycheck goes away, you start living off those assets. A lot of times, the earlier years of retirement are some of the more expensive years.

So, you start thinking about it and say, “Well, if you’re starting to withdraw some of your assets or having heavier withdrawals early in retirement and you retire into, let’s say, a 2008 with a great financial crisis, that can be a double whammy on the assets that you had built up and could really change the outlook of a long retirement and some of those expectations that you have.” So, we really want to be mindful of this idea of sequence of return risk. And the 4% rule maybe isn’t explicitly going down into that granularity and some of that detail and handling some of that importance, right?

If you’re just saying, “Hey, I’m pulling 4% out of my accounts no matter what every year, that’s changing things a bit from an investment standpoint, for sure.”

Speaker 3:

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Walter Storholt:

Easier to see how that works in times of stability, and then you start to see how that becomes a lot more of a shaky foundation if you have bad early years or just very volatile years in general.

Tyler Emrick:

Sure. Oh, absolutely. So, that comes around, well, how do you handle that, right? How should you start thinking about this risk and the withdrawals that you’re potentially taking out of your retirement accounts? And I think the first big step is just really the blocking and tackling of investing, and that’s just having a diversified portfolio, right? Having investments that zig when everything else zags, or having investments that are going to have less volatility when the stock market is going up and down. Traditionally, you think of things like bonds or cash or some other type of investment that might withstand some of those market downturns a little bit.

Certainly, we could speak to like a 2022 just a few years ago where the bond market had pretty much its worst bond market I think we’ve ever seen on record. That was a really bad year and some of those conservative investors that are listening, you look at your portfolios, you’ve seen some negative numbers you probably weren’t used to seeing in 2022 because interest rates were going up at such a rapidly rapid pace. The bond market was trying to digest it and it just was a very, very poor year for bonds. So, it’s not always that, “Hey, I’m just going to have my money in bonds. Bonds are going to do well when stocks don’t.”

That’s not always the case, but we do want to start thinking about our portfolio construction and our asset allocation, so the amount of stocks, bonds, cash, other diversifying assets that you can invest in. How does that all fit in? And two, do I have a place that I can go to if the stock market or other investments are down quite substantially that you can withdraw from during these times so you don’t have to sell out of stocks while they’re depressed? Because inevitably, well, we don’t want to get in a situation where we’re trying to tighten the market and inevitably you’re probably going to make the wrong decision because that is just so, so difficult to do.

So, you want to have in your portfolio construction this backend safety net of assets that you could potentially use to live off of if we have a little bit of rough times, right?

Walter Storholt:

Yeah. It’s like an expanded emergency fund in a way, right? Like you’d have an emergency fund to pull from for those immediate liquid needs.

Tyler Emrick:

Sure.

Walter Storholt:

This is just a softer version of that, but a way of saying, “Hey, my emergency as the market is down, so I’ve got these other reserves that aren’t as impacted that I can live off of compared to having to live off of that money in the market.”

Tyler Emrick:

You got it. And I think this goes down to your actual withdrawals as well. I mean, a lot of families when they retire, they’re living off monthly withdrawals out of a retirement account, right? An IRA or a 401(k). Well, if you have an investment professional or a financial planner that’s helping you, a lot of times I would assume that you’re leaning on those individuals when you do those withdrawals, right? That individual should be saying, “Well, hey, which investments do we want to pull from to satisfy this monthly withdrawal of $5,000 or whatever the case may be?” That can be even more pronounced Walt if we have a car purchase coming up, right?

We’re trying to decide, “Hey, do we pay cash? Do we finance? What are some of the pros and cons there?” If you decide that you’re going to use your assets and pay cash, well, which accounts are going to come from? That has tax implications, but then even more granularly with what we’re talking about here with the sequence of returns, well, which investment are you going to sell to then get you that cash? And that has everything to do with what’s going on in the market, where your performance has been, return expectations, all that good stuff, your financial plan, what you’re trying to accomplish, your risk parameters. I don’t know. We can go on and on and on.

I could probably rattle off a boatload of those considerations. Well, but when we think about heading off that sequence of return risk, really that’s what we’re trying to do when we’re thinking about your withdrawals and pulling from which investment do I want to use to accomplish the spending goal that you have and get the cash that you need. So, that would be number two. But the third thing I think we really should be mindful of to help head off this sequence of return risk is really just rebalancing through the downturn, right? The old adage of like, “Hey, I’m just going to buy and hold or I’m going to put my head in the sand and not look at my accounts.” I think oftentimes people can think that’s okay.

Well, at the end of the day, yes, you’re not trying to time the market with a strategy like that, but you’re also probably missing out on a bunch of opportunities for rebalancing when we experience these big volatile markets. And inevitably, you’re going to run into one as you think about a long, happy, healthy retirement. So, you want to make sure that you’re rebalancing through these downturns as well to help upset that sequence of return risk. When I say rebalance, all I’m saying is saying, “Hey, if your stocks are down 20% and it’s the first three months of the year, well, you’re likely more conservative than what you started the year at because your stocks are down 20%.”

So, we want to make sure that we are putting more money and rebalancing that stock exposure up so that way when the stocks do come back or we have a bounce back, you have the appropriate risk level to where you’re going to be able to capture that upside as well, right? If we’re not rebalancing through it, what’s going to happen is, hey, your stocks go down 20%, you just maintain them, now you have a lower overall exposure to stocks. So, when the stock market goes back up, you’re just not going to participate in that as much as what you did on the way down.

And we certainly want to make sure that, hey, if the stock market’s going up, you’re participating and you’re at the risk level that you feel comfortable with or you started a year with in that scenario that we’re talking about here. So, sequence of return risk, I think is a big one that is a little bit more granular way to think about some of the risks of just saying, “Hey, I’m going to pull 4% out of my account each year.” It’s managed around some of the volatility that your investments are showing you.

And here at True Wealth Design, we think about that assets that are a little more protected, maybe a little bit less volatile as a runway, right? We talk about it in the form of a runway with our families and our clients. And that’s simply saying, “Hey, of your overall assets that you have, how much are in investments that if the stock market were to be down 30% aren’t likely to be down 30% to where you’re not selling at the bottom.” Generally, we categorize this as preservation assets in our portfolios, but it could be used as bonds, cash, money markets, all sorts of names out there to represent this type of your portfolio.

But you take that amount of money that you have in these preservation assets and then take the expectation of withdrawals each year. So, let’s say, you have a half a million dollars in these preservation assets part of your portfolio that aren’t going to necessarily track the stock market and hopefully aren’t going to be down as much if the stock market is down. And you can use that or lean on that during these times. Well, and if you’re pulling out 50K a year, let’s say, to live off of, so half a million dollars in preservation assets, $50,000 a year from a withdrawal, you could think about your runway in the terms of about 10 years, right? Half a million dollars divided by 50K a year.

You got about 10 years worth of assets that you could live off of before you would actually have to go in and sell any type of stocks that would be depressed. And ideally, that’s going to match up with historical stock market volatility and risk parameters that you’ve set in the portfolio. So, traditionally, maybe the average stock market decline or pullback lasts maybe a year and a half, two years on the long end. So, it’s saying, “Hey, if you’ve got 10 years of runway, what we’re essentially saying is, hey, you have enough time to absorb any downturn in the stock market and hopefully be able to write it back up and live off the other parts of your assets.” So, make sense?

Walter Storholt:

Makes a lot of sense, Tyler. And especially the shirking of that old way of thinking, much like the old adage of like, as you get older, you move from stocks to bonds, like that oversimplified approach. And you’re saying one of the things we need to retrain ourselves on is the set it and forget it or the barrier head in the sand, the don’t check your statement’s element. That was great advice it seemed for such a long time. Don’t touch it because you’re just going to mess it up. Just stay invested and don’t do anything and you’ll be okay.

Tyler Emrick:

Think of your assets as a bar of soap, right? The more you touch it, the way to play with it, the more it goes away.

Walter Storholt:

And it’s not the worst advice in the world, but you’re saying, “Hey, since then there’s been better ways that have come out and that’s what you employ.”

Tyler Emrick:

Correct. Absolutely, absolutely. And that brings us maybe even to my second point here when I start thinking about the old 4% rule is this idea that your withdrawals aren’t necessarily linear, right? I mean, Walt, if you would look at your spending over the last five years Good point. Do you think you spent the same amount of money every single year?

Walter Storholt:

No, definitely not.

Tyler Emrick:

Each the last five, right?

Walter Storholt:

No, not at all. Yeah.

Tyler Emrick:

And I would argue that that’s not going to change when you’re in retirement, right?

Walter Storholt:

Sure.

Tyler Emrick:

Maybe you pay off a car, so your car payment goes away, you pay off your house, maybe you buy a car one year, so it goes up and then it goes down, right? So, with the…

Walter Storholt:

It’s probably even more predictable that those first few years, as we assume a lot of the time, are going to be higher spending years than later on in life.

Tyler Emrick:

That’s what this study show. I mean, David Blanchett, the retirement smile, we talk about it quite a bit here on the podcast hits back at that point where it’s saying, “Hey, generally speaking, as you look at retiree spending, for most individuals, it represents a little bit of a smile.” What I mean by that is, hey, early in retirement, let’s say, your early ’60s, your spending’s probably ever going to be more than that, right? That’s what studies are showing. You still maybe have a house payment, maybe you have a car payment, maybe you got your big travel to do list early in retirement and you knock that out, right?

Walter Storholt:

You’re getting a new car to do all the travel or another toy or…

Tyler Emrick:

RV, right? RV is the big one, especially since COVID, but whatever it is, that spending generally what’s going to happen is things generally progress and slide down and you spend less and less each year of retirement. It’s like this steady decline all the way throughout early retirement, through your ’60s, through your ’70s. And then you start reaching this point in your early ’80s where you’re bottoming out and then your spending starts to go back up again. So, it forms this smile, right? They call it the retirement consumption smile, the retirement smile consumption cosmo…

Walter Storholt:

And it’s mostly healthcare on the back end of the smile, right? Yeah.

Tyler Emrick:

It is. Yep. It’s something that healthcare comes into play and starts kicking up those expenses, right? But as you think about your ’70s versus your ’60s, maybe you’re not traveling as much, these things get paid off. You can apply that same logic to your ’80s compared to your ’70s and so on and so forth. So, this whole idea that you’re going to need the same amount, 4% per year every single year in retirement, really if you’re using that to do your retirement planning to say, “Do I have enough?” Well, you’re going to assume that you need a lot more saved than what maybe you actually do, right?

Especially if your spending does that retirement smile, like so many retirees do, then that might cause you to work another year or two more than what you’ve really needed to, right? And so, we like to think about your spending and sustainable spending a little differently. We think of it as like in this form of dynamic withdrawals, right? And this is the idea that your withdrawals each year, you understand that they’re going to potentially change, right? And in some years where we have a really bad market, maybe you can pull back on your spending and adjust it down and years where you have a really good year in the market, maybe you increase it. You can really take it that far.

For our families, we think of it as guardrails. So, we present it in the term of plan results, so success rates or safety margins. These are terms that families we work with are going to know, and probably we talk about them pretty much every meeting, but essentially what they are, they’re just plan results that we can gauge from year to year to gauge like how are things going, right? If your plan keeps looking better and better and better every year in your first five years of retirement, then the question comes and says, “Well, are you not spending enough? Should you be spending more? Should you be gifting more?

Should you be traveling more? Is there anything that you’re not using your wealth for that you should potentially be doing that?” Likewise, if you’re on the other end of that camp and your plan results are slowly starting to get worse and worse and worse over those first five years of retirements, you can course correct. You can start to think about, “Well, hey, how can I adjust my spending? How can I adjust my portfolio? What happens if I continue on this path? What options are going to be afforded to me,” right? So, we think about that spending puzzle more dynamic. And that’s why we meet with our families every single year and update their financial plan.

It’s one of the big pieces of the core of the advice that we provide is really to help paint that picture of like, what direction are you going and what opportunities are available to you to use your wealth in a way that better makes sense? I would argue that having this plan and thinking about your spending more dynamically and that it could potentially change from year to year, I would argue that it would help you with this sequence of return risk too, right? Bad market, spend a little bit less. Maybe you push the home improvement out to the next year or the year after, right?

We have these types of conversations all the time, especially with our families that are maybe taking on a little bit more stock risk or have a little bit more risks inherently in their portfolio. That’s an ever-changing conversation that we’re always trying to be managing and thinking through. And this flexibility is, I think, really good way to think about it because these small adjustments in spending might not feel like they can make a huge difference, but they absolutely can make a major difference as you start thinking about a 30 year, a 35-year-long, happy, healthy retirement, these things absolutely might absolutely matter.

So, I’ll give a little bit of insight on how we think about spending real quickly as we’re like finishing up here. But one of the first exercises that we go through with the families, what we’re meeting with on the first time wallet is really trying to say, “Hey, let’s get a good spending assumption here.” In past roles, I maybe hadn’t put the effort and really had a good enough conversation around what is truly spending. A lot of times in my early career, I would just ask families, “Hey, how much do you need to live off per month?” And the families would think about a rough number and then they would go from there, right?

But they’re not thinking about their mortgage falling off and not having that expense or their cars eventually getting paid off or, “Hey, I’m going to increase my travel in the first year of retirement for the next five because whatever my hobbies are going to increase.” So, a lot of times even the families that we work with, we find that having this type of conversation is really constructive as we start thinking about what are they trying to accomplish earlier on in retirement or later and how can they best use their money.

And so, when we do that exercise, a lot of times what we’re doing is we’re looking back on a prior year, “Hey, we first take a look at their tax return, I’ll know exactly how much money you made. I’ll know exactly how much went to go to Uncle Sam,” which is surprising to many folks or maybe not surprising, but hurts a little when they see it on the actual spreadsheet. And then I start taking inventory of their big recurring expenses like mortgage, car payments, gifting to church, whatever it might be. And I back that down into a number saying, “You made this, you paid this in taxes, you saved this, here’s some of the big expenses we could account for. Here’s what’s left.”

How much of what’s left is like really, truly you keeping the lights on, groceries, paying the bills, right, that type of thing. How much is other things that might fall off in retirement? And we just use that as generally a good discussion to try to wrap our arms around and get some type of gauge for what are our spending expectations. I’m not necessarily going down in and saying, “How much are you spending going out to Olive Garden every week or whatever your favorite restaurant is?”

Walter Storholt:

You’re not using the dreaded B word, right? Budget.

Tyler Emrick:

Budget, right? But hey, if you’ve got that and you’ve got it done to Excel, that makes our life a heck of a lot easier too, and that’s awesome. But we doesn’t have to necessarily be like that. But I think this idea of thinking about your withdrawals more dynamically and your spending was going to just provide a little bit better outcomes as opposed to just using some arbitrary 4% rule, assuming that it’s going to stay consistent throughout retirement.

Walter Storholt:

I’ve always thought of the problem with the 4% rule just on the market return side of things, never on that flip side of also the income being where it can divert a lot from that assumption of 4%. So, you can see if you happen to miss both of those assumptions, just how out of line that 4% rule could get and how it very quickly can become over simplistic for a lot of people. And I know, Tyler, that you and Kevin and the team at True Wealth Design, you work with folks that have worked really hard, saved a lot of money for retirement, have really put a lot of effort into this.

A lot of engineers who like numbers, who like the details, who want to squeeze the efficiency and get every dollar they can out of what they’re doing and their hard-earned work. And so, these differences really start to matter, not just on a one-year basis, but when you start to accumulate all the years of retirement or the years leading up to retirement thrown in on top of that, you can see the Gulf starts to widen between simple planning and retire smarter planning, right? Going that extra level, that extra depth. So, I really appreciate that. And I know a lot of our listeners and viewers will as well.

If you’ve never worked with the True Wealth Design team before, it’s very easy to have an initial conversation with Tyler and the team. All you have to do is go to truewealthdesign.com. We’ve got that linked in the description of today’s show and you can schedule a 20-minute discovery call with the team and find out if you’re a good fit to work with one another. So, again, go to truewealthdesign.com and look for the let’s talk button or click the link in the description of today’s show and we’ll take you right there.

Great episode today, Tyler. Thanks for all the details on this and we’ll catch up with you again soon.

Tyler Emrick:

Yeah, sounds good.

Walter Storholt:

All right. Take care. We’ll see everybody next time right back here on Retire Smarter.

Speaker 4:

Information provided is for informational purposes only and does not constitute investment tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.