Moneywise and Yahoo Finance LLC may earn commission or income by linking to the following content.
For decades, retirees have followed the guideline of withdrawing 4% of their investments each year in retirement. This maximum withdrawal rate was believed to be a reliable method of extending retirement income for 30 years or more.
A great advantage of the rule is its simplicity, but simple does not always mean good. Given how unpredictable the economy has become, the so-called 4% rule is seen as outdated, with organizations like Morningstar suggesting an exit rate of between 3.3% and 4% per year (1).
Some experts, such as Suz Orman, agree. In a 2023 interview with Money (2), Orman said the 4% rule “doesn’t work anymore,” adding, “I think it’s too dangerous. I think it should be reduced to at least 3%.”
Other experts are less convinced. During an event The Dave Ramsey Show podcast, Dave Ramsey told a caller that the 3% bounce rate was “just wrong (3)” and, in some cases, too low.
With so much disagreement among experts, it is not surprising that the search for alternative strategies is underway. And now, the team at Vanguard highlights these new strategies for you to reconsider using the 4% rule (4).
Here’s how they can help you set realistic financial goals for retirement.
Unlike the simple 4% rule, the bucket strategy suggests dividing your assets into different categories depending on when you expect to spend the money.
For example, you can create an “ultra-short-term” bucket that includes your checking account for monthly living expenses and emergency savings that can be tapped when needed.
A medium-term bucket can be placed in relatively low-risk fixed-income securities to meet spending needs — such as home renovations — for the next two to three years. You can also use special tax-advantaged accounts, such as a health savings account, to create a separate bucket for medical expenses.
Finally, you can place your remaining assets in a bucket of long-term investments, such as stocks or real estate, that can compound over time. This long-term bucket creates a retirement strategy based on your future needs.
By dividing your assets into these different buckets, you can adjust the risk-return profile in each one so that they match the expected cost schedule. You can also customize them to meet your specific spending needs and lifestyle.
If you know you are facing near-term health concerns, you can move more of your assets into this bucket. It can also be a good idea to consider your family medical history and plan accordingly.
Finally, the bucket method is much shorter than the traditional 4% rule. That means it takes a lot of planning—and maybe the help of a financial advisor—to make sure you don’t lose your savings in retirement.
Read more: I’m almost 50 and have no retirement savings. Is it too late to catch up?
Read more: Non-millionaires can now invest in this $1B private real estate fund starting at just $10
Working with a financial advisor can help you manage some of this process and make the complexities of the budgeting process more manageable.
But hiring the right advisor can be a lifelong commitment, one that could make or break your retirement. That’s why finding trusted professionals is so important.
Fortunately, platforms like Advisor.com can help you find the one that’s right for you.
Advisor.com connects 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 who are best suited to help you create your retirement plan.
You can view consultants’ profiles, read past client reviews, and even schedule an initial consultation for free, with no obligation to hire.
If you decide to take the bucket approach, you’ll also need specific savings vehicles to maximize your returns and keep your money growing.
For your short-term portfolio, you can consider a high-yield savings account that offers full access to your money at all times. Having this liquidity in an emergency fund is an essential part of being able to respond quickly to a crisis with full financial strength.
One way to quickly build an emergency fund is to take advantage of Wealthfront’s cash account, which offers both competitive interest rates and easy access to your cash when you need it.
The Wealthfront Cash Account currently offers a base variable APY of 3.30%, and new customers can earn a 0.75% boost for a 4.05% APY on their first three months of up to $150,000. That’s more than 10 times the national deposit savings rate, according to the FDIC’s February report.
With no minimum balance or account fees, as well as 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Additionally, Wealthfront cash account balances up to $8 million are FDIC-insured through program banks.
But what about growing your money over the long term? This is where the topic of investing in stocks and bonds usually comes up, often with something that is considered more stable, such as an ETF or index fund.
A general rule of thumb for retirement investing is to go with a 60/40 split between stocks and bonds. However, modern investment knowledge is changing—in part due to market uncertainty—to include a component of alternative assets in the mix (5). Alternative assets cover a wide range of potential investments, from cryptocurrencies to private equity and fine art.
However, one of the most common alternative assets, and one that you may have already invested in without fully realizing it, is real estate. Choosing to develop your property 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.
Now, there are ways to profit from real estate and access passive income opportunities without being a landlord.
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 large down payments or late-night tenant calls.
Founded by former Goldman Sachs real estate investors, the team selects the top 1% of single-family rental homes nationwide for you. Simply put, you can invest in basic quality offerings for a fraction of the normal cost.
Each property goes through an appraisal process, requiring a minimum return of 12% even in negative scenarios. Offerings often sell within three hours, investments are usually between $15,000 and $40,000 per property.
To get started, sign up for an account and then search for available properties. Once you verify your information with their team, you can start investing like a mogul in just a few clicks.
For those looking to test the waters without diving into real estate, another option might be to work with arrivals.
Backed by world-class investors including Jeff Bezos, Arrival allows you to invest in vacation and rental property shares, earning a passive income stream without the extra work that comes with owning your own rental property.
To get started, simply browse through their selection of vetted, hand-picked properties. Once you find something you like, you can start investing with as little as $100, potentially making quarterly profits.
Once you become an investor with Arrival, you will have access to their newly launched secondary market, where investors can buy and sell individual rental and vacation rental property shares directly on the platform.
This allows you to buy properties that you may have missed out on in the initial offering or sell shares before the property expires.
With access to more than 400 properties in 60 cities, this new way for real estate businesses opens up flexibility and opportunities to access more properties every quarter.
Another alternative to the 4% rule is dynamic spending planning, which was originally developed by Vanguard (6).
Rather than simply assuming you’ll spend 4% of your assets each year in retirement, this strategy involves setting an annual budget based on how much your assets earned last year, how much inflation you expect and how much you want to spend next year.
So, if your portfolio fell in value by 8% last year and inflation was at 2%, you can budget for 6% or less this year. You may also set a floor for annual expenses if the stock market returns 0% or less in any given year. For example, you can set a budget of $40,000 for each down year in the stock market.
In other words, with the dynamic costing method, you are not relying on the average estimate of stock market returns over the past several decades. Instead, you set a clear goal of how much you want to spend each year based on the actual returns and inflation you’ve experienced over the past twelve months.
However, in order to set that goal and track your estimated annual spending, you’ll need to be more proactive about managing your money in real time.
If you are looking for other ways to manage your wealth, you can use Monarch Money’s all-in-one budget app.
Monarch Money keeps all your finances under one roof, from your bank statements to your investments. You can also add separate or joint accounts to your dashboard. The app is also well reviewed. Forbes ranked Monarch Money as their best budgeting app for 2025, as did the Wall Street Journal.
And the best part? Monarch Money offers a seven-day free trial so you can see if it’s right for you. If you like what you see, you can take 50% off with code WISE50.
With a complete view of your finances, you can make sure you’re on track with more complex strategies like dynamic spending.
One of the benefits of a 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 may need to spend less.
The flip side is that your chances of cashing out in retirement can be significantly lower. Meanwhile, a potential drawback is that this strategy doesn’t give you a long-term set-and-forget type plan while requiring regular maintenance.
And so, in years when the markets are down and your investments are struggling, it’s critical to find ways to cut costs where you can.
Fortunately, as you enter retirement, top-focused organizations like AARP offer discounts on almost everything—from prescription and dental plans to travel, entertainment, and insurance.
As one of the most trusted organizations for older Americans, AARP not only offers money-saving benefits, but they can also help you make informed financial and health decisions.
AARP members get access to tips that can help you make the most of Social Security, choose the right Medicare plan and uncover other government benefits — which could save you thousands.
Sign up with AARP today and get 25% off your first year.
Join 250,000+ readers and be the first to get the best Moneywise stories and exclusive interviews – insightful insights curated and delivered weekly. Join now.
We rely only on verified sources and reliable third-party reporting. For details, see ourInstitutional Ethics and Guidelines.
Morning Star (1); @moneywisecom (2); @TheRamseyShowEpisodes (3); Wang (4), (6); Black Rock (5)
This article provides information only and should not be used as advice. It is provided without warranty of any kind.
