As seen in
Chicago Five Star award winners

The 4% Rule: Can You Get More From Your Retirement Portfolio?

The dreaded retirement conversation is often avoided, but it doesn’t have to be.  Seventy-seven percent of adults over 40 don’t know how much they can withdraw from their retirement accounts to avoid outliving their nest egg.[1] Here we aim to provide clarity.

Fortunately, determining your safe withdrawal rate isn’t as complicated as it sounds. It all begins with a simple, yet often misunderstood, financial rule.  It’s called the 4% Rule. Let’s take a deep dive into exactly what the rule is and its effect on your retirement mindset.

What Is The 4% Rule?

When you retire, you’re essentially turning your portfolio into a paycheck. The trick is deciding how much that paycheck should be. That’s where the 4% Rule comes in. According to this simple rule, when invested with a 60% equity/40% fixed income mix, your retirement savings should last at least 30 years if you withdraw 4% per year, with that dollar amount adjusted upward each year for inflation.

So, if you’ve saved one million dollars, four percent of your portfolio is $40,000 per year.  Add in $20,000 (for example) of Social Security, or any other income, and you have a total of $60,000 to live on in retirement (adjusted for inflation each year).  Compare this income estimate to your expected living expenses and you have an idea if your portfolio can sustain your retirement.

What If The Market Provides Below Average Returns?

It’s a common concern that as soon as you stop earning money, your investments will lose value or suffer a long period of poor returns.  This concern is wholly understandable.  It takes a major leap of faith to stop making money from your work and to trust that your portfolio and the markets – which are essentially out of your control – will carry the load. However, while past performance never guarantees future results, a bit of historical background on the 4% rule may help you rest easy.

The 4% safe withdrawal rate is not based on historical averages, it is based on historical worst-case scenarios.  This is in fact the point of the 4% rule being a safe withdrawal rate.  Retirees who took out 4% each year in retirement still had money left over 30 years later if they retired on the eve of the Great Depression, the stagflationary 1970s, or any other terrible period throughout market history.

When we sit down with retirees, we can’t know ahead of time if the next 30 years will be more like the best periods, the worst periods, or the average.  So, the purpose of the safe withdrawal rate is to simply assume that every period might turn out to resemble the worst.

Significant Upside Of The 4% Rule

When you plan for your retirement to occur during the worst-case scenario, the result is that you will most often end up pleasantly surprised.   In fact, over 90% of historical 30-year retirement periods result in significant growth of wealth during retirement, even while withdrawing 4% each year.  Using this safe withdrawal rate approach, two-thirds of the time the retiree finishes with more than double what they started with, and the median wealth at the end of 30 years is almost 3X starting principal. Of course, the past doesn’t predict future results.

How Can I Get More Than 4%?

Your retirement planning is not something to put on Autopilot.  Although the 4% rule was designed as an easy way to set a static withdrawal rate that will last through retirement with a balanced portfolio, it is also far from perfect, as we have seen.  After all, if the goal of retirement is to safely turn your portfolio into a paycheck, you also don’t want to pay yourself too little and sacrifice quality of life during your golden years.

Based on average returns dating back 140 years, an initial withdrawal as high as 6.5% will last 30 years in retirement.  Now we surely wouldn’t advise you to begin retirement taking 6.5% from your portfolio and hope for average over the next three decades (after all, average means you would run out of money 50% of the time). But there areways to increase the withdrawal rate above 4% when needed.

As we’ve seen, the possibility for portfolio growth to exceed a 4% safe withdrawal rates is real.  The best way to safely and confidently withdraw more than 4% is to develop a process of ongoing adjustments to your portfolio and income stream.  Specifically, there are three key elements:

Guardrail Strategy
Portfolio design and rebalancing
Withdrawal order and asset location


What if you could follow a conservative plan based on the 4% rule and still be able to increase spending during bull markets?  Well you likely can, if you follow the rules of the Guardrail strategy.

When following the Guardrail strategy, you vow to follow a set of pre-determined rules which influence the amount you can withdraw from your portfolio each year. If your portfolio value declines to a point which threatens its long-term viability, your following year’s withdrawal is reduced by 10%.  Conversely, should your portfolio grow above a certain threshold, your planned withdrawal is increased, and your portfolio income is given a “raise.”

Historically, adding this pair of decision rules to a retirement scenario allowed for an initial safe withdrawal rate higher than 4% in all previous retirement periods lasting 30 years.  That does not guarantee that history will repeat itself, but if does make a strong argument that ongoing monitoring of your retirement plan can add significant value.  By committing to the upper and lower “guardrails,” you can try to ensure that your withdrawal rate efficiently matches the reality of your retirement situation. There is a drawback: you must cut back spending during times when the lower guardrail is met. However, in practice this tradeoff is more than offset by the higher initial safe withdrawal rate obtainable.



Investment principals don’t get any better than “buy low, sell high.”  Yet this idea is much easier said than done. This is simply because it is natural for investors to feel fear and greed and to buy or sell investments accordingly – often to their own detriment.

A better approach is to invest not based on emotion, but according to a disciplined process guided by rebalancing.  The sketch below illustrates the idea simply.  Start with a general asset allocation target that aligns with your risk tolerance.  Then take what the market gives you: if an investment rises, sell a little; if it declines, buy a bit.



Most retirees have multiple accounts including IRAs, 401(k) Rollovers, Roth IRAs and/or taxable brokerage accounts.  Knowing which accounts to withdrawal from, and when, can help you save on taxes and increase the overall longevity or your portfolio.  According to a Vanguard study[2], advisors who create a strategic withdrawal plan for their clients can add up to 1% in annual value over the course of retirement.

There is similar value to be gained in “asset location,” which is the answer to the question “what investment goes where?”  Knowing which account to use for dividend-paying stocks versus higher-turnover investments, for example, can again minimize taxes and may increase portfolio longevity.


Next Steps

The 4% Rule is a simple calculation to help you determine how to make sure your retirement savings last. But as we have seen, it is far from a one-size fits all strategy.  You can very likely gain more clarity and income with your own individualized retirement planning. At Windgate Wealth, our team of financial advisors can help you design a personalized investment plan to help you achieve your goals. You can reach us by calling (844) 377-4963 or emailing You can also book an appointment online here.


[2]Quantifying Vanguard Advisors’ Alpha, September 2016

Click to access BrokerCheck
*Winners appearing on this page do not pay a fee to be considered or to win the Five Star Award. Professionals with a digital profile have paid a promotional fee.
The Five Star Wealth Manager award, administered by Crescendo Business Services, LLC (dba Five Star Professional), is based on 10 objective criteria. Eligibility criteria – required: 1. Credentialed as a registered investment adviser or a registered investment adviser representative; 2. Actively licensed as a registered investment adviser or as a principal of a registered investment adviser firm for a minimum of 5 years; 3. Favorable regulatory and complaint history review (As defined by Five Star Professional, the wealth manager has not; A. Been subject to a regulatory action that resulted in a license being suspended or revoked, or payment of a fine; B. Had more than a total of three settled or pending complaints filed against them and/or a total of five settled, pending, dismissed or denied complaints with any regulatory authority or Five Star Professional’s consumer complaint process. Unfavorable feedback may have been discovered through a check of complaints registered with a regulatory authority or complaints registered through Five Star Professional’s consumer complaint process; feedback may not be representative of any one client’s experience; C. Individually contributed to a financial settlement of a customer complaint; D. Filed for personal bankruptcy within the past 11 years; E. Been terminated from a financial services firm within the past 11 years; F. Been convicted of a felony); 4. Fulfilled their firm review based on internal standards; 5. Accepting new clients. Evaluation criteria – considered: 6. One-year client retention rate; 7. Five-year client retention rate; 8. Non-institutional discretionary and/or non-discretionary client assets administered; 9. Number of client households served; 10. Education and professional designations. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. Award does not evaluate quality of services provided to clients. Once awarded, wealth managers may purchase additional profile ad space or promotional products. The Five Star award is not indicative of the wealth manager’s future performance. Wealth managers may or may not use discretion in their practice and therefore may not manage their client’s assets. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or this publication. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future. For more information on the Five Star award and the research/selection methodology, go to 5,430 Chicago area wealth managers were considered for the award; 429 (8 percent of candidates) were named 2019 Five Star Wealth Managers. 2018: 5,449 considered, 435 winners; 2017: 3,781 considered, 438 winners; 2016: 3,411 considered, 725 winners; 2015: 5,833 considered, 716 winners; 2014: 8,161 considered, 744 winners; 2013: 3,998 considered, 772 winners; 2012: 2,970 considered, 780 winners.