After decades of saving and planning, retirement is your time to enjoy life on your terms. Yet, according to a 2025 survey from the Employee Benefit Research Institute, nearly 40% of retirees say they’re only somewhat confident their savings will last through their lifetime. It’s a concern shared by many older Americans, especially as people live longer and healthcare costs rise. The good news is that with careful planning, you can build a strategy that helps stretch your savings while supporting your lifestyle and providing you with peace of mind.
The 4% Rule: A Starting Point, Not a Guarantee
One of the most commonly cited guidelines for retirement withdrawals is the “4% rule.” This concept emerged in the early 90s when financial planner William Bengen analyzed historical market returns. He concluded that retirees could withdraw 4% of their portfolio in the first year of retirement, then adjust that amount for inflation each year, and continue to withdraw that amount each year. Bengen said that this would allow retirees to withdraw from their savings for about 30 years.
While the 4% rule remains a helpful benchmark, many experts caution that it does not perfectly match today’s retirement realities. Bengen’s original study assumed a specific mix of stocks and bonds, a steady inflation rate, and historical market trends that may not hold true in the decades ahead. Modern retirees often live longer than previous generations, may face higher healthcare costs, and must navigate volatile markets. Rigidly sticking to 4% could lead some retirees to draw down savings too quickly during long market downturns or periods of high inflation.
Rather than relying on this rule alone, it’s good to see it as one piece of a broader, flexible withdrawal strategy that adjusts to your unique circumstances, spending needs, and market conditions.
Building a Sustainable Withdrawal Plan
Here is a step-by-step approach to help you shape a withdrawal strategy that supports your retirement goals.
- Know All Your Income Sources
Start by adding up what you can count on each month:
- Social Security benefits
- Pension payments
- IRA/401k/Annuities
- Additional income, if applicable
Next, estimate what you’ll need to withdraw from savings to fill any gaps between income and expenses. Its always good to have a budget in mind that reflects your fixed costs, such as housing, car payments, and healthcare premiums.
- Understand Required Minimum Distributions (RMDs)
Most retirees must begin taking RMDs from traditional IRAs and 401(k)s by age 73.
An RMD is the minimum amount you must withdraw each year, whether you need the money or not. This is done to ensure that the government eventually collects taxes on money that has grown tax-deferred over the years. The exact amount is based on your account balance and life expectancy, calculated using IRS tables that update yearly.
Withdrawals are taxed as ordinary income, which can affect your total tax bill and even your Medicare premiums if they push you into a higher income bracket. Failing to take your RMD on time can lead to tax penalties of up to 25% of the amount you should have withdrawn. To avoid surprises, make sure to include RMDs in your annual retirement income plan and check the deadlines each year.
- Choose a Withdrawal Approach
In addition to the 4% rule, consider methods like:
- Fixed percentage: Withdraw a set percentage each year, adjusting based on portfolio performance.
- Bucket strategy: Divide your savings into “buckets” for short-term, medium-term, and long-term needs. This can help manage risk and keep some funds invested for growth.
- Factor in Taxes
Withdrawals from different accounts have different tax consequences. For example, money taken from a traditional IRA is taxed as ordinary income because contributions were made with pre-tax dollars. In contrast, qualified withdrawals from a Roth IRA are generally tax-free since contributions were made with after-tax money and the account has met certain age and holding requirements. Planning the order in which you draw from these accounts can help manage your taxable income and potentially lower your overall tax burden over time.
- Review and Adjust Annually
Life changes and so should your withdrawal plan. Check your spending each year, revisit your budget, and adjust withdrawals to account for inflation, market changes, or unexpected costs.
Additional Tips to Keep Your Strategy on Track
- Stay flexible. If the market underperforms, consider cutting back spending temporarily.
- Keep an emergency fund. Having cash set aside can reduce the need to sell investments in a downturn.
- Work with a professional. A certified financial planner can help you adapt your strategy as your needs evolve.
- Watch for fees. Investment and account fees can quietly chip away at your savings over time.
No one can predict how long their savings will need to last, but a well-crafted withdrawal strategy helps you prepare for the years ahead. Knowing how different approaches work, adjusting your plan as life changes, and staying mindful of taxes and required distributions can make your money work harder and go longer for you.
