It’s the most common fear in retirement planning: Will I outlive my money? Whether you have $100,000 or $10 million saved, that anxiety doesn’t magically disappear. In this blog, we explore what the data says about withdrawal rates, how the 4% rule was designed to protect your portfolio, and—most importantly—what adjustments you can make to spend confidently without sacrificing your lifestyle.
What the Data Actually Shows About Running Out of Money
Michael Kitces, a financial planning expert, ran a comprehensive study on the sustainability of retirement withdrawals. Using a classic 60/40 portfolio (60% US stocks, 40% bonds) and data dating back to 1870—including periods of war, depression, inflation, and growth—he tested what happens when retirees withdraw 4% annually, adjusted for inflation.
Key takeaway?
- The odds of running out of money using the 4% rule are incredibly low.
- In 2 out of 3 scenarios, retirees ended up with double the money they started with after 30 years.
- You’re more likely to 5x your wealth than end up with less than you began.
The 4% rule wasn’t built to be average—it was designed as a worst-case strategy to ensure your portfolio lasts through even the toughest market conditions.
The Hidden Risk: Underspending in Retirement
Fear of running out often leads people to under-spend. But what’s the cost of that caution?
Many retirees wake up 10 or 20 years into retirement with growing portfolios… and a list of experiences they never had. The opportunity cost of being too conservative is real: missed trips, unfulfilled goals, and money that never served its purpose.
For example:
- A retiree starting in 1975 could have safely spent 7–12% per year—but only took 4%, missing out on $35,000 of spending annually.
Being too cautious can mean leaving behind more than just money—it can mean leaving behind memories you never made.
So How Do You Get It Right?
Here’s the framework we use at Root Financial to help clients spend with confidence and stay financially secure.
1. Understand What the 4% Rule Really Means
The 4% rule originated with research by Bill Bengen. It wasn’t meant as a perfect fit for everyone—it was a starting point. It assumed:
- 50% in S&P 500 stocks
- 50% in intermediate-term government bonds
- Annual spending increases for inflation
But most investors today have more diversified portfolios. If you own small-cap stocks, international equities, emerging markets, or real estate, you likely have more flexibility—and more upside—than the original model assumed.
2. Diversify Strategically
Diversification isn’t just about spreading risk—it’s about creating options.
- In the 2000s, U.S. stocks struggled, but international and emerging markets outperformed.
- In the 2010s, the opposite was true.
By owning a range of asset classes, you give yourself flexibility to draw income from whichever segment is performing best—helping your portfolio last longer.
3. Use a Dynamic Withdrawal Strategy
Rather than blindly pulling the same amount every year, adapt to market conditions.
Guardrails-based strategies allow for:
- Cutting back slightly in down years
- Giving yourself a raise in strong years
- Avoiding inflation adjustments when markets are volatile
This dynamic approach helps increase your starting withdrawal rate without increasing the risk of running out.
4. Plan for Big One-Off Expenses
Retirement isn’t just smooth sailing year to year. You’ll face unexpected costs: health events, long-term care, major home repairs.
That’s why we recommend:
- Keeping some margin in your plan
- Not maxing out your safe withdrawal rate
- Having cash or a reserve strategy for emergencies
This reduces the risk of having to draw heavily from investments at the wrong time.
5. Build a Holistic Financial Plan
Your withdrawal rate is just one piece of the puzzle. Start with your vision:
- What do you want retirement to look like?
- What does that cost on an annual basis?
- What income sources will you rely on? (Social Security, pension, rental income, etc.)
- What role does your portfolio play in bridging the gap?
Once you have that, your strategy becomes clearer. You’ll see how much you need to withdraw—then optimize how to do it.
Final Thoughts: Spending With Confidence
Yes, running out of money is a risk. But so is failing to enjoy the retirement you worked so hard to build.
The 4% rule is a great starting point—but not the end of the story. With strategic diversification, dynamic withdrawals, and planning for real life, you can spend more confidently, adapt as life changes, and make sure your money supports your life—not just your fears.
If you’re wondering how much you can really spend—and how to make your money support the life you want—let’s talk. Schedule a call with Root Financial today.
The information presented is for educational and informational purposes only and should not be construed as personalized investment or financial advice. The content discusses general retirement planning strategies and is not intended to recommend any specific course of action for any individual.
Social Security claiming strategies involve a number of variables, including life expectancy, portfolio returns, tax considerations, and personal circumstances. Decisions regarding Social Security benefits should be made in consultation with your financial advisor, taking into account your full financial picture.
Examples provided are hypothetical and for illustrative purposes only. They do not reflect any specific client situation and should not be relied upon for investment decision-making. Past performance of investments is not indicative of future results. All investing involves risk, including the potential loss of principal.
This content may include hypothetical or forward-looking performance examples, including Monte Carlo simulations. These are intended to illustrate concepts and do not reflect actual investment results or guaranteed outcomes.
Assumptions used in simulations may not reflect real-world market conditions or client behavior. Actual results may vary significantly.
This content is for illustrative and educational purposes only and does not constitute a recommendation or personalized financial advice.