If you’re willing to be flexible, you can probably withdraw more than the traditional “4% rule” would dictate to help cover your spending in retirement. That’s one of the key conclusions from our recent annual study on safe withdrawal rates. My colleagues Tao Guo, Jason Kephart, Christine Benz, and I looked into a variety of strategies retirees can use to manage portfolio withdrawals. We examined a total of nine different strategies, all of which allow for higher withdrawal rates than the well-known “4% rule” originally developed by Bill Bengen. (I discussed strategies that maximize lifetime spending and money available for bequests in two previous articles.)

The Best Strategies for Boosting Starting Withdrawal Rates

For many retirees, spending more at the beginning of retirement is a top priority. And after spending decades working and saving, retirement can be the perfect time to enjoy the fruits of your labor. Starting with a more generous withdrawal rate can make a meaningful difference in spending early in retirement, when retirees are more likely to be healthy, active, and able to enjoy travel, dining out, concerts, and the like.

To measure the starting safe withdrawal rate, we used forward-looking return and volatility assumptions to test 1,000 hypothetical return patterns over a 30-year period. We then used these return patterns to find the highest starting withdrawal rate that ended with a positive portfolio balance in at least 90% of the trials. Although we tested other portfolio allocations, we assumed a portfolio made up of 40% stocks and 60% bonds to compare withdrawal rates across the different strategies we tested.

Five of the strategies we looked at were standouts based on starting safe withdrawal rates, as shown in the graph below.

Constant Percentage: 5.7% starting safe withdrawal rate

How it works: This approach is the most straightforward of any of the methods we tested. It simply applies a static percentage withdrawal to each year’s portfolio balance. While the percentage applied to the portfolio never changes, the amount withdrawn changes based on the shifts in the portfolio balance each year. To prevent drastic reductions in the withdrawal amount, we apply a floor so that the spending in a given year doesn’t drop below 90% of the initial withdrawal amount.

A retiree applying this approach will never deplete the portfolio because the withdrawal amount is always a percentage of the remaining balance. This method is also self-correcting, in that a portfolio decline will result in lower withdrawals in dollar terms, while an increase in the portfolio value leads to a higher withdrawal amount. Importantly, this method does not incorporate any type of inflation adjustment. Any increase in the withdrawal amount to help cover a higher cost of living is completely contingent on the portfolio value increasing and would only be temporary if a positive year for portfolio performance after withdrawals was followed by a lean one.

Example: In the first year of retirement, Alice withdraws 5.7% of her $1 million portfolio, or $57,000. After this withdrawal and the impact of market performance on the remaining holdings, the portfolio value is $980,720. She uses 5.7% of $980,720 to calculate the second-year withdrawal amount, which is $55,901.

Endowment: 5.7% starting safe withdrawal rate

How it works: While the constant-percentage method described above can lead to highly variable spending from year to year, university endowments often manage their budgets by using an average portfolio value over time, which has the effect of smoothing spending variations.

In our tests, we used a 10-year average portfolio value, which is an approach recommended by noted investment writer and academic Charley Ellis. At the beginning of the retirement period, we used the previous year’s ending value as the base for portfolio withdrawals. As each year passed, we added one additional year of portfolio values to calculate the average. After 10 years have passed, we use an average of the previous 10 years’ worth of portfolio values as the base for calculating withdrawals. As with the constant percentage method, we applied a floor so that the spending in a given year doesn’t drop below 90% of the initial withdrawal amount.

Example: In the first year of retirement, Bob withdraws 5.7% of his $1 million portfolio, or $57,000. After this withdrawal and the impact of performance on the remaining holdings, the portfolio value is $980,720. He uses 5.7% of $980,720 to calculate the second-year withdrawal amount, which is $55,901. By the end of the year, the portfolio value is $971,059. He then calculates an average portfolio value of $975,890, which he uses to figure out the third-year withdrawal amount of $55,626. At the end of each year, he calculates a new running average based on all of the annual portfolio values until reaching the end of the 10th year. After that point, he calculates the average using year-end portfolio balances for the 10 most recent years.

Guardrails: 5.2% starting safe withdrawal rate

How it works: Originally developed by financial planner Jonathan Guyton and computer scientist William Klinger, the guardrails method sets an initial withdrawal percentage, then adjusts subsequent withdrawals annually based on portfolio performance and the previous withdrawal percentage. The guardrails attempt to deliver sufficient—but not overly high—raises in upward-trending markets while adjusting downward after market losses. In upward-trending markets, in which the portfolio performs well, and the new withdrawal percentage (adjusted for inflation) falls below 20% of its initial level, the withdrawal increases by the inflation adjustment plus another 10%.

As with the other two methods discussed above, the guardrails method allows for a higher starting withdrawal percentage because it continually adjusts withdrawal amounts to avoid spending too much when the portfolio is down, but it allows for more generous spending when things are going well.

Example: In the first year of retirement, Claire withdraws 5.2% of her $1 million portfolio, or $52,000. If her portfolio increases to $1.4 million at the end of the year, the calculated withdrawal amount would be $52,000 plus an inflation adjustment—about $53,280, based on a 2.46% inflation rate. Dividing that amount by the current balance—$1.4 million—tests for the percentage. The amount of $53,280 is just 3.9% of $1.4 million. As that 3.9% figure is about 25% less than the starting percentage of 5.2%, she can make an upward adjustment of 10%. The new withdrawal amount becomes $58,608—the scheduled amount of $53,280 plus the additional 10% of $5,328.

Probability-Based Guardrails: 5.1% starting safe withdrawal rate

How it works: This method involves continuous testing and course correction, which in turn helps support an above-average starting safe withdrawal percentage. By regularly reassessing the spending plan’s probability of success and making adjustments as needed, retirees can spend more than they’d be able to with a more static strategy.

We tested this approach by recalculating the probability of success after each year of the test period. If the probability of success dropped to 75%, we reduced the proposed spending amount for the year by 10%. If a strong market environment boosted the probability of success to 95%, we increased the proposed spending amount for the year by 10%. Because this method sometimes led to extremely high spending amounts following a period of above-average portfolio returns, we capped the annual spending amounts at 120% of initial spending, adjusted for inflation.

Example: In the first year of retirement, Diego withdraws 5.1% of his $1 million portfolio, or $51,000. He adjusts this withdrawal amount for inflation and then recalculates the probability of success each year using an online tool. After several years of favorable market returns and modest inflation, his probability of success jumps to 98%. Because that’s higher than the upper limit, he bumps up his annual inflation-adjusted spending amount by 10%.

Vanguard Floor and Ceiling: 5.1% starting safe withdrawal rate

How it works: This approach, which is discussed by Vanguard in a 2023 white paper, is another variation on the guardrails method. Like guardrails, it sets an initial withdrawal percentage and then adjusts subsequent inflation-adjusted withdrawals if they end up being too high or too low. It sets a 5.0% ceiling on the percentage increase in the withdrawal amount from the previous year and a 2.5% floor on the percentage decrease in the withdrawal amount from the previous year. The goal is to avoid drawing down assets too aggressively when the portfolio value is down and being overly conservative after a period of positive performance.

As with the other four methods highlighted here, this approach allows for a higher starting withdrawal percentage because it fine-tunes withdrawal amounts to avoid spending too much when the portfolio is down but allows for more generous spending when things are going well.

Example: In the first year of retirement, Elaine withdraws 5.1% of her $1 million portfolio, or $51,000. Inflation during her first year of retirement is 2.5%, so her inflation-adjusted withdrawal amount at the beginning of year two would be $52,275. A 5% increase from that figure would be $54,889, which becomes the ceiling on withdrawals. A 2.5% decrease would be $50,968, which becomes the floor. If the portfolio value increased to $1,060,000 by the end of the first year, a 5.1% withdrawal amount would be $54,060. Because that amount is between the floor and the ceiling, that amount passes the test and becomes the final withdrawal amount.

Assuming inflation is 2.5% again in year two, the inflation-adjusted withdrawal amount for the next year is $54,060 times 1.025, or $55,412. The ceiling on year three withdrawals is $58,183 ($55,412 times 1.05), and the floor is $54,026 ($55,412 times 0.975). By the end of year two, the portfolio value decreases to $985,000. The base spending percentage of 5.1% times that amount is $50,235. Because that amount is below the floor, the withdrawal amount becomes $54,026 instead.

Other Benefits of These Five Methods

Because of their built-in flexibility, all five of these methods also allowed for greater lifetime spending (the total value of withdrawals over 30 years, assuming a $1 million starting portfolio balance) compared with the base case of fixed real withdrawals. That was particularly true for the guardrails and probability-based guardrails methods, which allowed for total lifetime spending of $1.36 million and $1.55 million, respectively.

Drawbacks of Spending Methods That Maximize Starting Safe Withdrawal Rates

But there are some trade-offs. Maximizing the starting safe withdrawal rate involves drawing down assets at a faster rate, which in turn leads to less money left over at the end of the 30-year period. The probability-based guardrails method ended up with a median ending portfolio balance of just $230,000. The guardrails method resulted in a higher ending value of $700,000, but it still might not be the best fit for retirees who want to leave a larger legacy behind for family members or charity.

These approaches also involve some variation in spending from year to year, which could be tough to live with for retirees who like the idea of a consistent “paycheck equivalent” to cover their spending needs. The endowment, constant percentage, and Vanguard dynamic spending methods, in particular, showed the highest swings in spending, with potentially large cutbacks in spending in the event of a portfolio decline.