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For decades, people planning for retirement have relied on the guideline that retirees should withdraw 4% of their investment portfolio every year in retirement, with the option to make adjustments to account for inflation.
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This maximum withdrawal rate was believed to be a sure-fire method for stretching a senior’s retirement income for 30 years or more.
But given how unpredictable the economy has been this year, the 4% rule might be a little outdated in 2025.
If you’re looking for an alternative, the team at Vanguard recently put forward two new strategies. Here’s a closer look at these updated retirement spending and withdrawal strategies, and why they could help you set a more realistic financial goal for retirement.
The bucket strategy
Unlike the simple 4% rule, Vanguard’s bucket strategy recommends splitting your assets into different categories depending on when you expect to spend the money.
For instance, you could create an “ultra-short-term” bucket that includes your checking account and emergency savings that can be tapped into for monthly living expenses. Another medium-term bucket could be set aside in relatively safe fixed income securities to meet spending needs — such as a home renovation — for the next two to three years.
You can also use specialized tax-advantaged accounts, such as a Health Savings Account, to create a separate bucket for medical expenses. Finally, you can deploy the rest of your assets into long-term investments such as stocks or real estate to compound over time.
By splitting your assets into different categories, you can adjust the risk-return profile on each so that they match the timeline of the expected expense. You can also customize these to meet your specific spending needs and lifestyle — for example, if you know you’re facing major health concerns in the near-term, you can divert more of your wealth into that category.
With the bucket approach, you’ll need specific savings vehicles to maximize your returns and keep your money growing. For your short-term bucket, you can consider a high-yield savings account that offers full access to your money at all times.
Wealthfront’s cash account is designed for those seeking a reliable and safe plan, offering a 4% APY, which is more than 10x the national average. Wealthfront offers an account that allows for fast (and free) transfers to internal Wealthfront investing accounts, as well as external accounts. That gives you the flexibility you need with your on-hand funds.
Plus, when you fund your new account today with $500 or more, you can get a $30 bonus with Wealthfront Cash.
For the medium-term, you’ll want a high-growth asset with stable returns. A certificate of deposit is a top choice.
Long out of favor due to the sluggish return rates, CDs now offer rates just under 5%, giving you a solid return on your cash.
You can compare rates and deposit terms using MyBankTracker, a bias-free aggregator of the top certificate of deposit offers from various banks nationwide.
Their extensive database shows the most competitive rates, with daily rate updates and personalized recommendations based on your risk preferences and time horizon so you can find the right CD to meet your retirement savings goals.
Finally, for your long-term investments, opting to grow your money in the real estate market can be a good way to bet on long-term growth.
New platforms like Homeshares offer accredited investors access to the $34.9 trillion U.S. home equity market, which has historically been the exclusive playground of large institutions.
When you invest with Homeshares, you get direct exposure to hundreds of owner-occupied homes in top U.S. cities through their U.S. Home Equity Fund — without the headaches of buying, owning, or managing property.
The fund focuses on homes with substantial equity, utilizing Home Equity Agreements (HEAs) to help homeowners access liquidity without incurring debt or additional interest payments. With risk-adjusted target returns ranging from 14% to 17%, the U.S. Home Equity Fund could unlock lucrative real estate opportunities, offering accredited investors a low-maintenance alternative to traditional property ownership.
Simply put, the bucket approach is more nuanced than the conventional 4% rule. That means it requires more planning — and perhaps the assistance of a financial advisor — to ensure you don’t deplete your savings in retirement.
Read more: You don’t have to be a millionaire to gain access to this $1B private real estate fund. In fact, you can get started with as little as $10 — here’s how
The dynamic spending strategy
Another alternative to the 4% rule is the dynamic spending plan. Instead of simply assuming you will spend 4% of your assets every year in retirement, this strategy involves setting an annual budget based on how much your assets have earned over the previous year, how much inflation you expect, and what you want to spend money on in the year ahead.
So, if your portfolio jumped 8% in value last year and inflation was at 2%, you can set a budget to spend 6% or less this year. You may also need to set a floor for annual spending if the stock market returns 0% or less in any given year. For instance, you could set a flat $40,000 budget for any down years in the stock market.
In other words, you’re not relying on an average estimate of stock market returns over several previous decades. Instead, you’re setting a clear target for how much you want to spend every year based on the real returns and inflation you’ve experienced over the past twelve months.
To set this target and keep track of your projected yearly spend, you’ll need a reliable tool where you can manage your money in minutes.
Monarch Money is a financial management platform that offers an all-in-one tool to help you track investments, spending and budgeting, and even offers personalized advice so you can feel confident about your money.
You can also feel confident about sharing your financial data with Monarch Money — the app is protected by Plaid for secure data integration, and employs multi-factor authentication at login, so you can keep your accounts safe.
Download the app now for a seven-day free trial. After that, you can get 50% off your first year with the code MONARCHVIP.
The advantage of the dynamic spending strategy is that it adapts to the economy and your personal circumstances in real-time. If the stock market had an exceptional year, you can spend more. If inflation was higher than expected, you can spend less.
The upside is that your chances of running out of money in retirement are significantly lowered. The downside is that this strategy doesn’t give you long-term visibility and needs effort and assessment on an annual basis.
Working with a financial advisor or using online tools to automate some of this process could help to make this a successful strategy for you. If you plan to pursue the dynamic spending approach, consider consulting with a vetted financial advisor.
Platforms like Advisor.com can help you find someone that’s right for you.
Advisor.com can connect you with professional advisors in minutes. Just answer a few quick questions about yourself and your finances and the platform will match you with experienced professionals best suited to help you develop your retirement plan.
You can view the advisors’ profiles, read past client reviews, and schedule an initial consultation for free with no obligation to hire.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
