How to Beat the 4% Rule

There are 70+ million baby boomers.

Roughly half of them are currently retired.

Nearly 12k boomers will be retiring every day from now until the end of this decade.

This group controls more than $85 trillion of wealth.

Not all of that wealth will be spent down. A lot of it will be passed down to the next generations.

But solving the retirement spending puzzle is going to be one of the main challenges for financial advisors and investors alike in the years ahead.

There is no scientific method to this process. It’s a game of expectations, estimations, guessing, planning and course corrections.

As a self-professed finance nerd I enjoy doing deep dives on your various options when it comes to spending down your portfolio.

This past summer I spoke with Bill Bengen, the father of the 4% spending rule.

Last month I shared a blog post from John Thees about his 4 year rule.

Every time I write or talk about this stuff, there are people offering comments, questions, concerns, and their own tweaks to the models. It makes sense that people are constantly tinkering with and building on top of retirement spending methods because there is no one-size-fits-all strategy. Like most financial advice, this decision is personal and circumstantial.

Stefan Sharkansky decided to throw his hat in the ring with a new research paper titled The Only Other Spending Rule Article You Will Ever Need.

I like this goal from the paper’s introduction:

Few have adequately explained how to satisfactorily avoid both the rock of outliving one’s assets and the hard place of chronic underspending.

Therein lies the problem for most retirees — how do you balance longevity risk with the risk of underspending?

Sharkansky’s model has some elements of the Four Year Rule and some variable elements of the 4% Rule.

Here’s how it works:

There are two primary allocations. The growth bucket is a stock market index fund. The spending bucket is a ladder of Treasury Inflation-Protected Secuturies (TIPS).

The TIPS provide relatively stable, inflation-protected income while the stocks provide more variability and growth. The split between stocks and bonds depends on how many years worth of spending you require or desire in fixed income.

The goal would be to set up a ladder of TIPS such that every year the maturing bond acts as your fixed income spending for the year. There is also a variable spending component that’s recalculated each year based on the amount of money you have in stocks (it’s a percentage of the total).

So there is a fixed and a variable component involved where the variable component acts something like an annuity or required minimum distribution that ensures you’re actually spending down your nest egg.

That variable component requires some flexibility though because it means higher levels of spending when the stock market is going up and lower levels of spending when the stock market is going down.

The 4% Rule was created to protect against the worst-case scenario. Most of the time, the worst-case scenario doesn’t happen, so you end up under-spending based on your portfolio’s potential. That was what Sharkansky was trying to avoid with his strategy.

As with most financial decisions, there are always trade-offs involved. There are also some surprising findings in his paper like the fact that a 100% stock portfolio would have actually led to better results than a balanced portfolio.

Article Link: https://awealthofcommo nsense.com/2025/12/how-to-beat-the-4-rule/