The seven rules, and what each one is actually for
A withdrawal rule is a decision about who absorbs market risk: your portfolio or your lifestyle. Rigid rules protect the lifestyle and push all the risk onto the portfolio. Flexible rules do the reverse. Everything else is a variation on that trade.
- Constant dollar. The classic 4% rule, also called fixed-dollar withdrawals. Withdraw a set amount, inflation-adjusted, regardless of what markets do. Maximum spending certainty, maximum portfolio risk.
- Percent of balance. Also called fixed-percentage withdrawals. Withdraw a constant share of the current balance. The portfolio can never be exhausted; income swings with the market instead.
- Guyton-Klinger guardrails. Spend a fixed amount, but cut when the withdrawal rate drifts too high and raise when it drifts too low. A middle path with explicit trigger points.
- Vanguard dynamic spending. Spend a set share of the current balance, but let the inflation-adjusted amount rise by at most 5% and fall by at most 2.5% a year. Income follows the market, smoothed so a bad year costs a small cut rather than a large one.
- VPW. Variable percentage withdrawal: each year, spend the amount that would empty the portfolio by the end of the plan at an assumed return. Income rises and falls with the balance, and the share you spend grows as the horizon shortens.
- Ratchet. Start like the 4% rule, then raise spending permanently when the portfolio runs well ahead of where it started. Spending never steps down, so it keeps the 4% rule’s certainty while sharing in good markets.
- Floor and ceiling. Spend a set share of the current balance, but never less than a floor or more than a ceiling, both set against the first year’s spending in real terms. Income follows the market inside a band you choose.
Free calculators: nine withdrawal rules compared, 4% rule calculator, Guyton-Klinger calculator, Vanguard dynamic spending calculator, VPW calculator.
Comparing withdrawal strategies: pros and cons
Every drawdown strategy trades steady income against the risk of running out. The table puts the common ones side by side. A systematic withdrawal plan, the standing instruction many brokerages and fund companies offer to pay you a fixed amount or percentage each month or quarter, is simply a way to automate one of the first two rows.
| Strategy | How spending is set | Pros | Cons |
|---|---|---|---|
| 4% rule (fixed dollar) | 4% of the starting balance, raised with inflation each year | Steady, predictable income | Ignores markets, so a bad start can run the money out |
| Fixed percentage | A set share of each year’s balance | Cannot run out of money | Income rises and falls with the market |
| Guardrails (Guyton-Klinger) | A fixed amount, cut or raised about 10% when the withdrawal rate leaves a band | Higher starting income, with explicit rules for cuts | Occasional 10% cuts after bad markets |
| Vanguard dynamic spending | A share of the balance, with yearly changes held to +5% and −2.5% | Small, gradual changes | A long slump adds up to a deep cut |
| VPW | The amount that would spend the balance down over the remaining years | Uses the whole portfolio, spending share rises with age | Volatile income and little left at the end |
| Ratchet | The 4% rule, stepped up permanently after strong markets | Shares in good markets and never cuts | Each raise leaves less buffer for the next crash |
| Yale endowment rule | 80% of last year’s spending raised for inflation, plus 20% of a target rate times the balance | The smoothest income that still follows markets | A long slump still grinds spending down, just slowly |
| Bucket strategy | Spending comes from a cash bucket that stocks and bonds refill | Avoids selling stocks after a crash | An allocation method, so it still needs one of the rules above |
Free calculators: Yale spending rule calculator.
The bucket strategy
The bucket strategy splits savings by when you will spend them. A first bucket holds one to two years of spending in cash. A second holds the next several years in bonds. A third holds the rest in stocks for growth. You spend from cash and refill it from the other buckets after good years, so a crash does not force you to sell stocks at the bottom.
Buckets do not change how much you spend; they change where the money comes from in a bad year, which makes them a defence against sequence of returns risk rather than a spending rule. They work with any of the rules above, and they can be run with a small account too, by keeping a year of spending in cash and the rest invested.
Free calculators: bucket strategy calculator, sequence of returns risk calculator.
Which accounts to withdraw from first
The same spending can owe very different tax depending on the account it comes from. Withdrawals from a taxable brokerage account owe tax only on the gain, a traditional 401(k) or IRA withdrawal is ordinary income, and qualified Roth withdrawals are tax-free.
The conventional order is taxable accounts first, then tax-deferred, then Roth, which lets tax-advantaged money grow longest. Proportional withdrawals take from every account each year in proportion to its size instead, which spreads taxable income more evenly and can avoid a jump in tax later in retirement. Neither order is right for everyone. Killion lets a plan use either and shows the estimated lifetime tax for the order you pick.
Free calculators: withdrawal order calculator, retirement tax calculator.
Required minimum distributions: withdrawals you have to take
Tax-deferred accounts eventually force withdrawals. Required minimum distributions start at 73 if you were born from 1951 to 1959 and at 75 if you were born in 1960 or later. Each year’s minimum is the prior year-end balance divided by an IRS life-expectancy factor, about 3.8% of the balance at 73 and rising with age. Missing one costs a 25% excise tax on the shortfall, cut to 10% if you correct it promptly.
Roth IRAs have no RMDs for the original owner, and since 2024 neither do Roth 401(k)s. In a drawdown plan, RMDs set a minimum for your traditional-account withdrawals: you do not have to spend the money, but you do have to take it out and pay tax on it.
Free calculators: RMD calculator.
Social Security timing and your drawdown plan
When you claim Social Security changes how hard your savings have to work. Claiming at 62 permanently reduces the benefit, and each year you wait past full retirement age adds 8% until 70. Delaying means drawing more from savings in your 60s, then much less once a larger, inflation-adjusted benefit starts.
That bridge is one of the most common drawdown strategies: spend the portfolio first, claim later. Whether it pays off depends on how long you live and how the portfolio does in those bridge years. Killion models the claiming age you choose inside the same simulation as the spending rule.
Free calculators: Social Security breakeven calculator.
The retirement smile, annuities and floor income
Real spending is rarely flat. David Blanchett’s 2014 research on retiree spending found it tends to fall in real terms through the 60s and 70s and rise again late in life with healthcare costs, a shape called the retirement smile. A plan that raises spending with inflation every year can overstate the middle decades.
Another approach is to split spending into two layers. Essential costs are covered by guaranteed income such as Social Security, a pension or an annuity, and discretionary spending comes from the portfolio under a flexible rule. Annuities trade away flexibility and what you leave behind for income that cannot run out, so they suit the floor rather than the whole budget.
Free calculators: pension vs lump sum calculator, retirement paycheck calculator.
Essential spending as a floor
Flexible rules only work if you can genuinely flex. A rule that cuts spending 20% is meaningless if 80% of your outgoings are a mortgage, insurance and food.
Killion lets a plan carry an essential-spending floor: the level below which withdrawals will not be cut regardless of what the rule suggests. Modelling that floor is what separates a spending policy you would actually follow from one that looks good in a chart.
What we found when we tested them
We ran flexible and rigid withdrawal policies through 5,000 identical market lifetimes. The flexible 4% policy lasted in every run; the rigid 4% policy failed in 1.1% of them. That is a small headline difference, and the trade-off behind it is the interesting part: the flexible policy bought that safety by spending less in bad decades.
A separate benchmark of six strategies on the same simulated markets found the ordering between them was stable, which is what you want from a comparison: the ranking came from the rules, not from which markets each rule happened to draw.
The research behind it
- Is the 4% Rule Still Safe? We Ran 5,000 Simulated Retirements
- Which Investing Strategy Wins? Six Strategies Benchmarked on the Same Markets
Related features
- Tax estimates: Federal and state tax estimated inside the projection, by account type, with RMDs, IRMAA and Roth conversions.
- Backtesting: Run your portfolio and withdrawal rule through every real market start year since 1928 and get a survival rate for each.
- What-if scenarios: Retire two years earlier, switch the spending rule, add a market shock, then compare up to four plans side by side.
Choosing between tools? The best retirement planning software roundup compares Killion with Boldin, ProjectionLab and the others on price and features.