Here are 5 ‘safe’ ways to boost the 4% rule of retirement spending:
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Based on their work, here are five ways a retiree may be able to increase their Initial Withdrawal Rate above 4%. Keep in mind that many of these strategies can and should be used in combination with one another.As noted above, a 4% IWR is considered"safe" because it works in the worst markets we've experienced in the last century. Most of the time, however, a retiree could start with a much higher IWR.
In the Kitces' paper noted above, he determined the safe IWR was 4.4% using a 60/40 portfolio. His findings were based on hypothetical retirements beginning from 1871 to 1975. Keep in mind that too much of a good thing can be very bad. A 100% stock portfolio in retirement significantly underperformed a 50 to 75% stock portfolio at IWRs ranging from 4% to 8% in Bengen’s original study., Bengen examined the 4% rule with an asset allocation that included small-cap stocks.
have looked at even more elaborate portfolio constructions, with similar or even better increases in the safe IWR. Note that in Bengen's 1997 paper, he reduced the equity portion of the portfolio by 1% a year in retirement.As popular as the 4% Rule is, it's hard to imagine that any retiree has ever followed it through a 30-year retirement.
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