Rethinking the 4% Retirement-Spending Rule

NOVEMBER 10, 2017

Faced with the prospect of outliving their savings, many retirees tend to be overly cautious, unnecessarily preserving wealth at the expense of a more comfortable and fulfilling retirement. Indeed, a recent study found that today’s retirees are so committed to pinching pennies that their portfolios are actually growing, rather than shrinking, as they enter their 80s.1

“Most people know how to save for retirement,” says Rob Williams, managing director of income planning at the Schwab Center for Financial Research, “but they often struggle with spending what they’ve saved.”

Rob notes that although many financial advisors tout the merits of the 4% rule—in which a retiree withdraws 4% of her or his assets in the first year of retirement, adjusting for inflation each year thereafter—there’s often a better way to go. “You want a plan that’s specific to your situation, not one that’s based on a generic rule of thumb,” he says. “You aren’t a math formula and neither is your retirement-spending plan.”

While those who expect to live well into their 80s or even 90s—or who wish to pass money on to their heirs—should aim for smaller withdrawals, those who are further along in retirement or otherwise less concerned with outlasting their savings may be able to live a bit larger (see “What’s your number?” below).

What’s your number?

Your time horizon should inform your withdrawal level.

Source: Schwab Center for Financial Research. Percentage withdrawal amounts are for a 75% level of confidence that funds will not be completely depleted over the given time horizon. Assumptions are based on a moderate-portfolio allocation. For illustrative purposes only.

No matter which withdrawal rate you land on, remember that you can always reassess, as necessary. “Even the most optimistic among us may need to adjust our plans from time to time to make our retirement savings last,” Rob says.

The bottom line: Make sure your retirement-spending plan is realistic—but not overly pessimistic.

1Ben Steverman, “Rich Retirees Are Hoarding Cash Out of Fear,”, 05/16/2017.

Important Disclosures

Schwab Intelligent Advisory is made available through Charles Schwab & Co., Inc., a dually registered investment advisor and broker-dealer.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Confidence level is defined as the number of times a simulated portfolio ended up with a balance greater than zero, using forward-looking portfolio return projections and the spending rate.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers are obtained from what are considered reliable sources. However, their accuracy, completeness and reliability cannot be guaranteed.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.