Withdrawing in retirement: the 4% rule and the order to spend accounts

Saving the money turns out to be only half the job. The other half — the half a withdrawal calculator exists for — is deciding how fast to let the pile shrink. Whether you search for a savings withdrawal calculator, an investment withdrawal calculator or a retirement spending calculator, every one of them is negotiating the same trade: spend too slowly and you undershoot the retirement you saved for; spend too fast and the money can run out while you are still very much alive. Below I run that negotiation on one portfolio — $750,000 — three different ways, and then show the order I would empty the accounts in, because that order is worth real money too.

Way one: the 4% rule — $30,000 a year, then inflation raises

The famous guideline comes from William Bengen’s 1994 study of historical US returns: withdraw 4% of the portfolio in year one, then raise the dollar amount by inflation each year, and a balanced portfolio historically survived at least 30 years. On $750,000 the first year pays $30,000 — $2,500 a month. With 3% annual raises, the year-ten withdrawal has grown to $39,143. Two things to see clearly: the rule never aims to spend the portfolio down to zero, which is why it starts lower than the alternatives; and it is a finding about the past, not a guarantee about your future.

Way two: spend it evenly, like an annuity

The opposite philosophy treats the portfolio as a paycheck with an end date. Ignoring growth entirely, $750,000 over 30 years is $2,083.33 a month. Let the money keep earning a steady 5% and the exact spend-down payment rises to $4,026.16 a month — with the final payment in month 360 emptying the account precisely. This is the method behind the income view in our retirement calculator: it converts your projected nest egg into an even monthly income across the retirement you specify. Its honesty is appealing and its assumption is the danger — it prices in a smooth 5% every year, and real markets do not do smooth.

Way three: respect the order of returns

Here is the risk neither method above shows you. Take the same $750,000, withdraw the same $30,000 at each year-end, and apply the same three annual returns — down 15%, down 5%, up 12% — in two different orders:

Identical returns, identical withdrawals, identical portfolio — a $15,795 difference after three years, created purely by sequence. Losses early in retirement wound a spending portfolio far more than the same losses later, because withdrawals force you to sell into the fall.

This sequence risk is the real argument for flexibility: a retiree who can trim withdrawals in a bad year — postpone the trip, not the groceries — defends the portfolio exactly when defence matters. A rigid plan, whether it follows the 4% rule or an annuity schedule, cannot do that. The best retirement withdrawal calculator is therefore the one you re-run every year, not the one you obey for thirty.

A workable compromise: set the rate, then review it

Between the rigidity of the 4% rule and the false precision of an annuity schedule sits the approach I actually recommend: start from a guideline figure, then review it once a year against two facts — your current balance and your actual spending. After a strong year, a modest raise is affordable; after a bad one, trimming the withdrawal by a tenth defends the portfolio exactly when sequence risk bites. The adjustments stay small and deliberate rather than panicked. A withdrawal plan is not a number you compute once at 65; it is a rate you steer, and the retirees who steer it annually almost never need to change it dramatically.

The order to spend the accounts themselves

Sequencing matters across accounts too, because each dollar comes out under different tax rules. The order I work through, and the one most consistent with the IRS’s own constraints, is:

1. Required minimum distributions first. Once they start, they are not optional — you take them whether you need the cash or not.
2. Taxable brokerage accounts next. Withdrawals are mostly your own basis coming back, plus capital gains at preferential rates, and you control the timing.
3. Traditional 401(k) and IRA money after that. Every dollar is taxed as ordinary income, so spreading these withdrawals across years — filling lower tax brackets rather than spiking into higher ones — is where the planning value lives.
4. Roth accounts last. Qualified Roth withdrawals are tax-free, and a Roth IRA has no required distributions during the owner’s lifetime, so these dollars get the longest tax-free runway and make the most flexible inheritance.

The RMD clock itself comes from the SECURE 2.0 Act: required minimum distributions begin at age 73 if you were born from 1951 to 1959, and at age 75 if you were born in 1960 or later. The IRS sets each year’s amount as your balance divided by a life-expectancy factor from its Uniform Lifetime Table — at 73 the factor is 26.5, so a $750,000 tax-deferred balance carries a first required withdrawal of about $28,302. Notice how close that lands to the 4% guideline’s $30,000: the tax code and the rule of thumb are quietly calibrated to similar spending speeds.

Sources: Internal Revenue Service — required minimum distributions, the Uniform Lifetime Table and the SECURE 2.0 Act starting ages; William P. Bengen, Determining Withdrawal Rates Using Historical Data (1994), for the 4% guideline. Annuity and sequence figures computed for this article; assumed returns are illustrations, not forecasts. General information only, not personalised advice.