Oct 13, 2025
While we adhere to strict editorial guidelines, partners on this page may provide us earnings.
If you choose early retirement, you have a long money-management journey ahead of you. By choosing the right withdrawal strategy, you can absorb shocks and bumps in the road.
The well-worn 4% rule from retired financial adviser William Bengen has been guiding retirees through their golden years since the 1990s. Bengen analyzed stock and bond market returns and determined that withdrawing 4% of your portfolio every year was a relatively safe way to ensure you don’t run out of money while retired (1).
Advertisement
However, this approach may not be the best for younger retirees. If you plan to retire before the average age of 63 for women or 65 for men (2), you need a different approach to make sure you don’t outlive your savings. Here’s why the 4% rule doesn’t fly in early retirement and how you can adopt a better strategy.
A rule for an earlier era
When Bengen developed the 4% rule in 1994, he based his model on two key assumptions: That the retirement portfolio would be split between 60% stocks and 40% bonds, and that it would be withdrawn to zero over a 30-year time horizon (1).
In other words, it was designed for people retiring in their 60s, living to their 90s and following a traditional investment plan.
However, roughly 18% of U.S. adults would like to retire before the age of 55 and 8% of them believe this is achievable, according to YouGov (3). For that to work, the early retirees will have to figure out how to spread their money out over a time horizon potentially much longer than 30 years, putting them at greater risk of outliving their assets.
This is why the traditional 4% rule might not work for early retirees. The rule also overlooks other important factors such as inflation, taxes and different portfolio mixes. Early retirees need to take a different approach to withdrawals to ensure they spend their nest egg wisely.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
A more flexible approach
Instead of following a rigid 4% withdrawal plan, a better approach would be to adapt your withdrawal rate to market conditions every year. That’s according to financial planner Jonathan Guyton and professor William Klinger, who developed the guardrails approach in 2006.
To apply the guardrails approach, you start with a certain withdrawal rate — say 4%. But you also set guardrails that are 20% above and 20% below this withdrawal rate. In this instance, that works out to 4.8% on the upper end and 3.2% on the lower end. Then you create an annual budget based on staying within this range of withdrawal rates every year.
If the market value of your portfolio declines enough to push your withdrawal rate above the upper end, you cut back on spending to stay within the guardrails. If it performs better than expected and your withdrawal rate drops below the lower end of the range, you can withdraw more to spend on items on your wishlist or for tax-efficient strategies such as capital gains harvesting.
Advertisement
Guyton and Klinger’s research suggests this approach has a lower chance of resulting in retirees running out of money than the standard 4% rule over long time horizons. Also, because this dynamic withdrawal strategy is based on the portfolio’s actual value, it works for asset-mixes other than the traditional 60-40 stocks-bond mix (4).
Dynamically changing your withdrawal rate every year can allow you to keep up with another important factor: inflation. This approach compels you to shift your budget when the cost of living rises, which will help you prolong the life of your nest egg.
When you stop working years before most people, you’re not just retiring early — you’re signing up for an unusually long financial voyage. Over such long time horizons, markets will rise and fall, inflation will ebb and surge, and your needs will shift.
Committing to a fixed withdrawal plan would be like locking your steering wheel on a cross-country drive — but a more flexible approach lets you make the course corrections that keep you from veering off the road.
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
CNBC (1); Center for Retirement Research (2); YouGov (3); CNBC (4)
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
