How Much Can I Safely Spend in Retirement?

At some point in almost every retirement planning conversation I have, the 4% rule comes up. Sometimes a client brings it up — they've read about it somewhere and want to know if it applies to them. Sometimes I introduce it as a starting framework. Either way, it's one of those concepts that's genuinely useful and genuinely misunderstood in equal measure.

So I want to do two things in this post: explain what the 4% rule actually is and where it came from, and then be honest about its limitations and what a more complete picture of retirement spending looks like.

Where the 4% rule came from

The 4% rule originated from research by financial planner William Bengen in 1994. Bengen analyzed historical market returns going back to 1926 and found that a retiree who withdrew 4% of their portfolio in the first year of retirement, then adjusted that amount for inflation each subsequent year, had a high probability of their portfolio lasting at least 30 years — even through periods of poor market performance.

It was a meaningful contribution to retirement planning thinking, and the core insight still holds: a diversified portfolio can support a reasonable level of ongoing withdrawals without being depleted, as long as the withdrawal rate is calibrated appropriately.

The 4% figure became a shorthand, a starting point — a way to back into a rough portfolio target by dividing your annual income need by 0.04.

What's changed since 1994

Here's where I want to be straightforward with you: the financial landscape has shifted in some meaningful ways since Bengen's original research, and those shifts matter for how you apply the rule today.

Interest rates spent much of the 2010s near historic lows, which reduced the expected return contribution from the bond side of a portfolio. While rates have moved higher in recent years, the long-term return environment for bonds looks different than it did in the decades Bengen studied.

Valuations matter too. When stock market valuations are elevated relative to historical norms at the time you retire, the expected returns over the following decade tend to be more modest. That doesn't mean the market will decline — no one knows that — but it does mean that the historical return assumptions embedded in the original research may not perfectly reflect what future retirees experience.

Longevity is another factor. Bengen's research targeted a 30-year retirement. A healthy 62-year-old couple retiring today in Phoenix might reasonably be planning for 35 years or more. The longer the horizon, the more conservative the withdrawal rate needs to be to maintain a high probability of success.

None of this means the 4% rule is wrong or useless. It means it's a starting point, not a final answer.

What a more complete picture looks like

Rather than anchoring rigidly to 4% — or any fixed percentage — I find it more useful to think about retirement spending in a few different layers.

The first layer is your essential spending — housing, food, healthcare, utilities, the things that aren't optional. Ideally, a significant portion of this is covered by guaranteed income sources like Social Security and any pension. The less of your essential spending that depends on portfolio withdrawals, the more resilient your plan is to market volatility.

The second layer is your lifestyle spending — travel, dining, entertainment, the things that make retirement enjoyable. This is where some flexibility is genuinely valuable. Research on retirement spending consistently shows that retirees naturally spend less as they age — the active travel years tend to cluster in the earlier part of retirement. Building a plan that reflects that natural spending curve, rather than assuming flat inflation-adjusted spending for 30 years, often produces a more realistic and optimistic picture.

The third layer is what I think of as contingency spending — healthcare costs that are hard to predict, home repairs, support for family members, or simply the unexpected. Having a buffer for this, rather than assuming everything goes according to plan, is part of what separates a robust retirement income plan from a fragile one.

The flexibility factor

One of the most important variables in retirement spending research is spending flexibility. A retiree who can reduce discretionary spending by 10–15% during a significant market downturn — pulling back on travel for a year or two, for example — dramatically improves the long-term odds of their portfolio surviving. A retiree who is locked into fixed spending with no flexibility faces a much harder mathematical challenge.

This is one of the reasons I spend time with clients thinking through which parts of their spending are truly fixed and which have some give. That distinction matters a lot when we're stress-testing a retirement income plan.

What this means for Phoenix-area retirees

Arizona's cost of living — particularly compared to coastal metros many of my clients have moved from — can work meaningfully in your favor here. Lower housing costs, no state tax on Social Security, and a relatively affordable day-to-day cost of living in the Phoenix suburbs can reduce the withdrawal rate you need from your portfolio to fund a comfortable retirement.

That's not a reason to be less rigorous in your planning. But it is a genuine advantage worth quantifying when you're building the plan.

So what number should I use?

Honestly, I'd encourage you to think less about the right percentage and more about the right process. A thoughtful retirement income plan — one that accounts for your guaranteed income sources, your spending flexibility, your tax situation, your investment mix, and your longevity — will give you a much more useful answer than any rule of thumb.

4% is a reasonable place to start the conversation. It's not a place to end it.

If you're trying to figure out what you can actually spend in retirement and want to work through the numbers carefully, that's exactly the kind of analysis I do with clients. I'd be glad to walk through it with you.

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Disclosure

The content of this post is for educational purposes only andshould not be construed as personalized financial, tax, or legal advice. Thisis not an offer to buy or sell securities. No investment process is free ofrisk and there is no guarantee that the investment process described hereinwill be profitable. Investors may lose all of their investments. Pastperformance is not indicative of current or future performance and is not aguarantee. Investment advice offered through IHT Wealth Management, a registeredinvestment adviser.