October 22, 2025

Chucking the 4% Rule to boost retirement spending

Illustration of a beautiful view of the window, with a large 4% hovering in the sky.

Is the 4% Rule dead?

It’s not dead, but it’s flawed, said a statistician specializing in finance who has announced research challenging the 4% rule and similar fixed-rate withdrawal strategies for retirement spending.

Stefan Sharkansky published a research study and launched The Best Third, a website that gives retirees and financial advisors the ability to explore Sharkansky’s annual recalculated virtual annuity approach to retirement withdrawal strategy. ARFA’s framework for withdrawing funds focuses on a combination of a ladder of Treasury inflation-protection securities and a low-cost stock index fund. Users can adjust factors such as retirement age, portfolio value, income needs and confidence levels to create personalized retirement income plans.

Sharkansky said his research empowers retirees to safely spend more of their wealth while avoiding both premature portfolio depletion and unnecessary underspending.

Highlights from the research include:

The ARVA method calculates safe, flexible withdrawals each year based on market values and expected longevity — avoiding the static limits of rules such as the 4% Rule.
– Historical simulations show ARVA consistently delivers higher lifetime income than traditional methods, with less downside risk.
Advisors and retirees can balance income stability, spending flexibility and legacy goals through a transparent allocation between stocks and TIPS.
Unlike fixed-rate rules, the strategy is designed to facilitate variable withdrawals to adapt to age-related spending patterns, and to changing tax liabilities as retirees withdraw from accounts with differing tax consequences.

The three problems with the 4% Rule

The 4% Rule isn’t dead, Sharkansky told InsuranceNewsNet. But the concept of a constant withdrawal rate in retirement has flaws.

“There are three real problems with constant rate withdrawals,” he said. “When they say they’re safe, they’re not really safe. In whatever simulation you use to say what the markets might do, in

whatever you describe as tolerably low percentage of the simulation scenarios, you’re only going to run out of money in a tolerable percentage of the simulation ratios. Well, if your actual market scenario is at the low end of what your simulation thinks it is, then you will run out of money.”

The more likely scenario and the problem with constant rate rules, he said. “because it’s designed to almost never run out of money, the flip side is that you’re basically not going to spending as much as you really can afford to spend. Therefore, you’re not going to be able to enjoy the standard of living and comfortable lifestyle that you truly can afford.”

The third problem, he said, is that spending in retirement is not constant.

“Research shows that spending patterns vary over people’s lives in retirement. When they’re younger and relatively healthier and more energetic, they want more travel and leisure. As people get older, their spending tends to decline and then it may increase again as they have more health care needs toward the end of life.”

Mitigating market volatility

Sharkansky said his plan mitigates market risks with its two components. The first is TIPS, which can be set for different levels. “It protects you against any kind of volatility because you hold the bonds to maturity so you know exactly what you’re going to get in inflation-adjusted terms when those bonds mature and as coupon payments are paid.

“The second thing that mitigates volatility is the way you withdraw from your stock portfolio. The way this program is designed, you allow yourself to withdraw more when markets are up and you withdraw less when markets are down. TIPS, along Social Security and any other income you have, that’s your paycheck plan – your base pay – and your bonus on the performance of the stock market.”

Sharkansky’s research is not the first to challenge the 4% Rule recently. New research published in the Journal of Retirement found that full or partial annuitization leads to better retirement income outcomes than the 4% rule. The research also found that those with smaller nest eggs benefit from annuitizing more of their income.