Better Financial Health in 15 Minutes (or less!)

Rethinking Retirement Rules: Withdrawal Rates and Flexible Spending

• Stacey Hyde

Share episode

The goal isn’t a magic number—it’s a plan that bends without breaking. We take a hard look at the classic 4 percent rule and explain why a pencil, not a tattoo, belongs next to your withdrawal rate in today’s world of longer lifespans, persistent inflation, and shifting market cycles. Instead of chasing certainty, we build a system: a clear baseline for essentials, a flexible band for discretionary spending, and simple guardrails that tell you when to adjust.

We unpack how the original study assumed a 50-50 U.S. portfolio and higher bond yields, and why those inputs may not hold for the next 30 years. From there, we map a practical range—roughly 3.5 to 5 percent—based on your asset mix and risk tolerance. If markets drop 20 percent, trim withdrawals about 10 percent to protect the plan; if markets rise 20 percent, allow measured increases to fund travel, a car upgrade, home projects, or gifts to family. This approach reduces panic decisions, keeps lifestyle creep in check, and helps you enjoy the good years without putting the bad years on a credit card.

We also tackle the costs people forget: annual insurance, property taxes without escrow, the hot water heater that dies at the worst time. By separating needs from wants and aligning needs with a 4 percent baseline, you get clarity. By scheduling periodic reviews, you recalibrate as markets and life change—raising the baseline when sustained gains support it, or tightening temporarily after heavy withdrawals in weak markets. Retirement planning becomes personal, responsive, and resilient.

Ready to stress-test your number and set smart guardrails? Follow the show, share this episode with someone planning their retirement, and leave a review with the one question you still have about sustainable withdrawals.

Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis, TN 38137. (901) 422-7526. This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.

SPEAKER_00:

Hi, I'm Stacy Hyde, and I'm back for another episode of Better Financial Health in 15 minutes or less. And what I'd like to talk about today is retirement's new math. Why 5% might be the new 4% with the caveat. So most people have heard the famous 4% rule for retirement withdrawals. It's really kind of been treated like the gospel. We refer to it here quite a bit. But in today's market, it may not be the be all and end all. It may be as outdated as a floppy disk. And if you don't know what that is, ask your parents. But so what the 4% rule says is that you can take out 4% of your original account balance each year and then index that for inflation. And it was a useful and it's a practical tip to just kind of get an idea of how much you can withdraw from your account balance each year, which is a very important thing to know if you're nearing retirement or you're trying to back into how much you can withdraw from your accounts each year. It was actually came up in a 1994 study by a guy by the name of Bill Bingham, I think that's how you say his name. And he looked at 30-year retirements, but he had a 50-50 portfolio. It only had U.S. stocks and bonds. And so it wasn't really a diversified portfolio, so it did have some limitations on it. And bond yields at that point were 6%. And so why that may not be as reliable going forward is we have longer life expectancies now. We also have um higher inflation, and US equity markets have higher valuations as well. So, and future returns could possibly be lower. And you know, that's one of the things that we often talk to clients about, you know, because they're like, well, you know, I've made 10% a year for the last several years. I'm like, yes, but that actually is a reason that the next year might not be that good because markets go in cycles. And so it's important to go into retirement with a little bit of flexibility in your thought process and in your spending. So maybe you start out with drawing 5%, but if markets drop 20%, then you trim that amount by 10%, which would take you a little bit lower than your 5%. And so it's a way we call this in our world the guardrails. And then if your portfolio goes up by 20%, well you can increase your withdrawals. And so in that way, you have kind of a it's a guardrail. So on the upper side, if the portfolio goes above the upper side, you increase what you're taking out. If it drops below, then you would reduce your withdrawals. So what that means is when we talk about safe withdrawal rates, we're really talking about a range of about 3.5% to 5%, depending on one, your ability to be flexible with your spending and also with your risk tolerance. If you're super, super conservative and you don't want but you know, 20 or 25% equities, then you're definitely going to be on the lower range of that. If you're more comfortable with the fluctuations, then you could be on the higher end of that. But you'd also have to know that you're going to be more likely to have to reduce your spending during times of market stress. So what you've got to look at there is how does that work for you in practice? And the way that we have historically translated it in our practice is we kind of say the target, your baseline spending needs to be about that 4%. And then if things are better and there's something you want to do, or something that you need to do, a new car, um, fix up the backyard, help the grandkids out, whatever, if markets are good, we're going to encourage you, yeah, go ahead, take the extra money now. It's a good time. So while that's not a strict guard whales philosophy, it kind of functions in practice that way. It also allows us to not have to come to our clients and say, oh, well, markets are down, you need to dramatically reduce the spending. So we've kind of got them and we recommend tying spending to that 4% um withdrawal rate. Um, I read somewhere that your withdrawal rate should not be tattooed in, it should be penciled in. I'm not a big fan of tattoos, so I really like that one. I think most things should be penciled in or you know, temporary tattooed on. And at the end of the day, 4% is a really good starting point because it helps you kind of understand where your spending needs to be because almost everybody is misses things or forgets about expenses. You know, we're real good at saying, okay, these are my regular bills that come in, but then we forget, oh man, I only pay my I paid my home all, but I still have to pay my home insurance, and that's once a year. And you know, now I'm having to pay my taxes because I no longer have an escrow or the hot water heater died. That stuff still happens. So it's important to have some flexibility in your schedule. And I think that having a 4% withdrawal rate with the ability to go up to that five gives you kind of the flex that you need to take care of the I wouldn't say unexpected, but stuff that maybe you didn't really want to spend money on to begin with. And then I think it's also important to every couple of years to look at um what's going on in your life, in your finances, and see if you can increase that if the if your 4% really is still 4%, because if the markets have gone way, way up, you may want to increase it. If you've taken out extra and then markets have been poor, you may want to decrease the amount you're taking out. So pay attention, retirement math is not easy. We spend so much time and energy running scenarios, using shortcuts like the 4% rule. But at the end of the day, retirement is personal, as is financial planning, and that's the intersection where we try to come and help our clients understand how these things fit together and how best to navigate life and finances. So thanks for tuning in. This has been another episode of Better Financial Health in 15 minutes or less.