Spending Your Retirement Without Running Out: What the Numbers Actually Say

In October 1994, a financial planner named William Bengen published a paper in the Journal of Financial Planning that quietly rewrote how America thought about retirement. His question was simple: how much can a retiree safely withdraw from a portfolio each year without ever running out of money? His answer, drawn from every 30-year market window going back to 1926, was 4% of the starting portfolio value in year one, adjusted upward for inflation each year after that.¹ That figure became known as the 4% rule, and it has sat at the center of retirement planning for three decades.

The research still holds up under the historical data. The problem is that the data stops in the past, and today's conditions look different from most of the periods Bengen studied: valuations are higher, bond yields were historically suppressed for years, and a retiree hitting 65 in 2025 might need that portfolio to last 35 years, not 30. More recent analysis by Morningstar and Vanguard has put the safer starting point closer to 3 to 3.5%, particularly for someone retiring in their early 60s.¹ That half-percentage-point difference is not trivial. On a $1,000,000 portfolio, 4% is $40,000 a year; 3.5% is $35,000. Over a 30-year retirement, that gap in assumptions compounds into a radically different outcome.

Let's start with how the withdrawal math actually works, then move to the three levers you control: what you pull from first, when you claim Social Security, and how you plan for healthcare.

What the 4% Rule Is Really Telling You

The rule is a starting point for year one, not a fixed dollar amount forever. You take your 3 to 3.5% in year one, and then in year two you take the same dollar figure adjusted for inflation, regardless of what the market has done. So if year one is $35,000 and inflation runs at 3%, year two is $36,050, year three is $37,132, and so on. After 30 years at 3% inflation, that initial $35,000 has become roughly $82,000 in nominal withdrawals, but the purchasing power is the same as when you started.

The mechanism that makes the rule work is sequence of returns: not your average return over 30 years, but the order those returns arrive. A retiree who gets bad years in the early part of retirement, while withdrawals are cutting into a still-large portfolio, is in a far more dangerous position than one who gets those bad years later. This is why a conservative starting rate is a hedge against the bad luck of retiring into a down market, not a hedge against a bad average return.¹ If you want to run the numbers against your own starting balance, the retirement calculator shows you how a given rate holds up across different return sequences.

The Order You Pull Money Out Is Almost as Important as How Much You Pull

Most people think about withdrawal rate and ignore withdrawal sequence. That is a costly oversight. The basic framework comes from the tax treatment of three account types: taxable brokerage accounts, traditional retirement accounts like a 401(k) or traditional individual retirement arrangement (IRA), and Roth accounts.²

Money in a taxable brokerage account grows as capital gains, which are taxed at preferential rates of 0%, 15%, or 20% depending on income, well below the rates on ordinary income.³ When you die, your heirs receive a step-up in cost basis, meaning unrealized gains in that account effectively disappear for tax purposes. That makes taxable accounts the right place to pull from first.

Traditional IRA and 401(k) withdrawals are ordinary income, taxed at your marginal rate, which for many retirees sits between 22% and 32%.² Worse, the IRS forces you to start taking required minimum distributions (RMDs) from these accounts at age 73, whether you want the money or not.⁴ The government will get its tax revenue eventually, so your job in the years between retirement and 73 is to make strategic draws from traditional accounts, keeping yourself in lower tax brackets rather than letting the RMD force a larger, higher-taxed withdrawal later.

Roth IRA money, by contrast, was already taxed before it went in. Withdrawals are tax-free in retirement, and there are no lifetime RMDs.² That tax-free growth is genuinely valuable, and the longer you leave it alone, the more valuable it becomes. Pull it last.

A worked example makes the difference concrete. Suppose you retire with $1,500,000 divided across three buckets: $400,000 in a taxable brokerage account, $700,000 in a traditional IRA, and $400,000 in a Roth IRA. You need $50,000 a year to live on, and Social Security covers $30,000 of that, so the portfolio only needs to produce $20,000 in year one. You pull that from the taxable account, where the tax bill is small. Meanwhile, you convert a portion of the traditional IRA to Roth each year, filling up your lower tax brackets while you still control the timing, before RMDs at 73 take that control away. By the time you reach your 80s, a larger share of your money sits in the Roth, growing and compounding without any tax drag and without any mandatory withdrawals. Working through the optimal conversion schedule with a CPA is not a luxury here; over a 30-year retirement the tax savings on a $700,000 traditional IRA can easily reach six figures.^{2 4}

When to Claim Social Security: the Lifetime Bet

You can claim Social Security as early as age 62 or as late as 70. Every year you wait past your full retirement age (which is 67 for anyone born after 1960) increases your benefit by 8% per year, a feature called delayed retirement credits.⁵ Waiting from 62 to 70 raises your monthly benefit by roughly 77% compared to the early-claim figure.

The math on waiting is favorable for anyone in reasonable health who expects to live past 80. The breakeven analysis is essentially this: you give up several years of smaller checks to receive larger checks for the rest of your life. At the canonical breakeven point, roughly age 80 depending on your exact benefit, the cumulative lifetime income from waiting overtakes the cumulative income from claiming early, and after that you are ahead by roughly the difference in monthly benefit multiplied by every month you live.⁵ A couple where both spouses claim at 62 instead of 70, and both live to 90, could be looking at a lifetime shortfall of $300,000 or more compared to the delayed-claiming path.

The case for claiming early is narrower: poor health and a realistic expectation of a shorter-than-average life, or a situation where you genuinely need the income now and have no portfolio to draw from. For most people with assets, though, delaying Social Security functions as a low-cost longevity insurance policy, providing a larger inflation-adjusted income that is guaranteed by the federal government regardless of what the market does.

Healthcare: the Expense That Eats Plans

Medicare begins at 65 and covers a significant share of healthcare costs, but far from all of them. Part A covers hospital stays and is generally premium-free. Part B covers outpatient care and runs around $185 per month in 2025.⁶ Part D covers prescriptions and varies by plan, typically adding $30 to $70 per month. That base coverage leaves real gaps: no dental, no vision, no hearing, and substantial out-of-pocket exposure on hospitalizations and specialist visits.

Most retirees fill those gaps with either a Medigap supplemental policy or a Medicare Advantage plan, each of which carries its own premiums and tradeoff structure.⁶ The total monthly cost for base Medicare plus a solid supplemental policy commonly runs $400 to $700 for a single retiree in their mid-60s, and higher in later decades as utilization increases.

Long-term care is the wildcard in every retirement budget. About 30% of people who reach 85 will need some form of long-term care, whether assisted living (typically $5,000 to $7,000 a month) or a skilled nursing facility ($8,000 to $10,000 a month), and Medicare generally does not cover extended custodial care.⁵ A three-year nursing home stay at the median rate is $270,000 to $360,000. When you add that tail risk to the ordinary cost of Medicare over 20 to 25 years of retirement, a total healthcare budget of $300,000 to $400,000 per person is not an overestimate.

The most effective hedge available before retirement is the health savings account (HSA). Contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free, making it the only triple-tax-advantaged account in the entire tax code.⁷ The IRS sets annual contribution limits (around $4,150 for self-only coverage and $8,300 for family coverage in 2025, with an additional $1,000 catch-up if you are over 55).⁷ Someone who maximizes an HSA through their 50s and leaves the money invested rather than spending it as they go enters retirement with a dedicated, tax-free healthcare reserve, and any unused balance after 65 can be withdrawn for any purpose, paying only ordinary income tax, which makes it function as a bonus traditional IRA.

What a Complete Plan Actually Looks Like

Now shift to where all of these pieces interact. Take someone who retires at 67 with $1,500,000: $400,000 in taxable, $700,000 in a traditional IRA, and $400,000 in Roth. Social Security at 67 pays $2,500 a month, or $30,000 a year. A 3.5% withdrawal from the full portfolio adds $52,500, with a portion of that coming from the taxable account and some from strategic Roth conversions. Part-time consulting brings in $15,000 to $20,000 in the early years. Total income: close to $100,000 a year, against expenses of roughly $78,000 including housing costs, healthcare, food, travel, and giving.

Year after year, the Roth continues compounding untouched. The traditional IRA shrinks through strategic conversions in the 22% bracket, so that by 73 the RMD on what remains is manageable rather than punishing. The taxable account depletes over roughly eight years, then the traditional IRA carries the load, and in the final third of retirement the Roth produces tax-free income.

Run a market stress test against that plan: if the portfolio drops 30% in year two, the withdrawal needs to shrink, or part-time income needs to fill the gap, or both. A retiree with flexibility in their spending has a dramatically more robust plan than one whose expenses are fixed at the top of their withdrawal capacity.

The Mistakes That Break Perfectly Good Plans

Underestimating healthcare costs is the most common. Projecting $150,000 in lifetime healthcare on the assumption that Medicare handles most of it is a budget that will get blown. Build in $300,000 to $400,000 from the start and revisit it every few years.

Claiming Social Security at 62 because the check feels like found money is often the second. If you can wait, wait. The 8% annual increase in your delayed benefit is a guaranteed real return that no bond portfolio can currently match.⁵

Ignoring RMD exposure in your traditional IRA is the third. The IRS will force withdrawals at 73, and if your traditional balance is large and your other income is also large, those forced distributions will land in a high tax bracket.⁴ Strategic Roth conversions between 60 and 73 are one of the few legal ways to reduce that bill before it comes due.

Overall, the question retirement planning is really answering is not whether you have enough but whether you have sequenced it well enough to make what you have last. The math is in the ordering as much as the amount: which bucket, in which year, at what tax rate. Get that right, and a portfolio that looks borderline becomes comfortable. Get it wrong, and a portfolio that looks sufficient runs dry a decade before it should.

How confident are you that you know the order yours should come out?