Practical Applications of Time to Retire: The 4% Withdrawal Rule

Abstract

In Time to Retire: The 4% Withdrawal Rule, from the July 2023 issue of The Journal of Investing, Rob Brown of Integrated Financial Partners finds that a dynamic withdrawal rule with a floor consistently beats constant withdrawal rules (e.g., the 4% rule) in optimizing both standard of living and financial security for retirees. Brown finds that the optimal rule for a 35-year retirement horizon is a monthly withdrawal equal to a varying fraction of a retiree’s portfolio. The fraction starts at 1/393 and then increases monthly when there are 392 months remaining in the retirement horizon: the divisor (denominator) becomes 392 and increases by 1 each following month. Monthly withdrawals are subject to a floor of 0.307% of the initial portfolio. Additionally, 100% of the portfolio is invested in stocks. Risk mitigation by time diversification makes the inclusion of bonds or precious metals unnecessary and suboptimal.