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For decades, retirees have followed the guideline to withdraw 4% of their investment portfolio each year in retirement. This maximum withdrawal rate was believed to be a sure-fire method for stretching retirement income for 30 years or more.
However, given how unpredictable the economy has become, the 4% rule is seen as outdated — and financial experts have new recommendations for the over-65 crowd.
One of the rule’s big advantages is its simplicity, but simple doesn’t always mean better. And now, the team at Vanguard has put forward two new strategies to challenge the 4% rule (1).
Here’s how they could help you set more realistic financial goals for retirement.
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.
This long-term approach to your retirement creates a financial gradient based on your needs.
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. It could also be a good idea to consider your family’s medical history and plan accordingly.
Read more: Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
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 could consider a high-yield savings account that offers full access to your money at all times.
Liquidity is an essential part of being able to quickly respond to a crisis with your full financial force.
One way to build an emergency fund quickly is to take advantage of Wealthfront’s cash account.
A Wealthfront Cash Account provides a base variable APY of 3.50%, but new clients can get a 0.65% boost over their first three months for a total APY of 4.15% provided by program banks on your uninvested cash. That’s over ten times the national deposit savings rate, according to the FDIC’s November report.
With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, you can ensure your funds remain accessible at all times. Plus, Wealthfront Cash account balances of up to $8 million are insured by the FDIC.
If you want to shop around first, you can also browse some of the best high-yield accounts of 2025 to assess your options and start building your emergency fund with the bank of your choice.
But what about making your money grow in the long term? This is where investing in stocks and bonds typically comes up, often with something stable like an ETF or index fund.
The general rule is to go with a 60/40 split between stocks and bonds. However, modern investing wisdom is shifting — in part due to market uncertainty — towards including a slice of alternative assets in the mix. Alternative assets cover a wide number of potential investments, from cryptocurrency to private equity and fine art.
However, one of the most common alternative assets, and one you may already be invested in without fully realizing it, is real estate. Opting to develop your wealth in this market can be a good way for retirees to bet on long-term growth, but it doesn’t have to be through a mortgage.
Mogul is a real estate investment platform offering fractional ownership in blue-chip rental properties, which gives high net worth investors monthly rental income, real-time appreciation and tax benefits — without the need for a hefty down payment or 3 A.M. tenant calls.
Founded by former Goldman Sachs real estate investors, the team hand-picks the top 1% of single-family rental homes nationwide for you. Simply put, you can invest in institutional-quality offerings for a fraction of the usual cost.
Each property undergoes a vetting process, requiring a minimum 12% return even in downside scenarios. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.
To get started, sign up for an account and then browse available properties. Once you verify your information with their team, you can invest like a mogul in just a few clicks.
Another option, for those looking to test the waters with real estate, would be to work with Arrived.
Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.
To get started, simply browse through their selection of pre-vetted and hand-picked properties. Once you find something you like, you can start investing with as little as $100, potentially earning quarterly dividends.
And the best part? Arrived is rolling out a secondary market, so you have even more control over your investments.
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.
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 way to 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 comfortable 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 WISE50.
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 could spend more. If inflation is 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 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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Vanguard (1)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.