Vishesh Raisinghani

Sun, Jun 15, 2025, 10:00 AM5 min read

The 4% rule is pretty much the gospel for financial advisors and savvy savers. For decades, people planning for retirement have relied on this simple rule-of-thumb to calculate their ultimate financial target.

The rule is a guideline that suggests retirees should withdraw 4% of their investment portfolio every year in retirement, with the option to make adjustments to account for inflation. This maximum withdrawal rate was believed to be a sure-fire method for stretching a senior's retirement income for 30 years or more.

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But given how unpredictable the economy has been in 2025, the 4% rule might be insufficient if you’re looking for long-term peace of mind. After all, the rule was created by financial advisor Bill Bengen all the way back in 1994 and relied on his analysis of stock market returns over the previous 30 years.

Simply put, the 4% rule might be a little outdated in 2025.

If you’re looking for an alternative, the team at Vanguard recently offered two options. Here’s a closer look at these updated retirement spending and withdrawal strategies, and why they could help you set a more realistic financial goal for retirement.

Unlike the simple 4% rule, Vanguard’s bucket strategy recommends splitting your assets into different categories depending on when you expect to spend the money.

For instance, you could create an “ultra-short-term” bucket that includes your checking account and emergency savings that can be tapped into for monthly living expenses. Another medium-term bucket could be set aside in relatively safe fixed income securities to meet spending needs — such as a home renovation — for the next two to three years.

You can also use specialized tax-advantaged accounts, such as a Health Savings Account, to create a separate bucket for medical expenses. Finally, you can deploy the rest of your assets into long-term investments such as stocks or real estate to compound over time.

By splitting your assets into different categories, you can adjust the risk-return profile on each so that they match the timeline of the expected expense. You can also customize these to meet your specific spending needs and lifestyle — for example, if you know you’re facing major health concerns in the near-term, you can divert more of your wealth into that category.