Why the 4% rule isn't enough on its own
The 4% rule (Bengen, 1994) was derived from US historical data, 1926–1976, with a 50/50 portfolio and a 30-year horizon. It assumes you spend the inflation-adjusted same dollar amount regardless of market conditions. It has no memory and no adaptability. The dynamic rule (Guyton-Klinger) cuts spending in down markets and raises it in up markets, which historically produces a higher survival rate with the same average spend. The bracket-aware rule adds a tax dimension: fill up to the top of your current bracket each year, leave the rest in tax-deferred accounts to grow.
FAQ
What does "portfolio depleted" actually mean here?
In this simulation, "depletion" means the portfolio balance goes to or below zero. In real life, you'd be forced to cut spending, claim Social Security early, or sell the house. The simulation is a tool for comparing strategies, not a forecast.
Why is the 4% rule's "success rate" historically 95% if it's so simple?
Because 95% is a high number. The 5% of historical scenarios where it failed include the 1966 retiree who lived through the worst 17-year stretch in US market history. For someone retiring in 2000 with a 30-year horizon, the historical failure rate was higher. Sequence-of-returns risk is the unmodeled variable.
What about bonds in a high-inflation environment?
The classic 4% rule assumed bond returns matched inflation. The 2021–2023 period showed that's not guaranteed — bonds lost real value while inflation was high. Most modern updates suggest a smaller bond allocation or shorter-duration bonds in the retirement window. The simulation here uses a constant mean return, so it understates this risk.
Methodology
Each simulation draws a normally distributed annual return with mean 5.5% (equity portion) and 2.5% (bond portion), weighted by allocation. Standard deviation is 15% (equity) and 5% (bonds), 0% correlation. Inflation is drawn from N(2.5%, 1.5%). 4% rule: spend initial rate, inflation-adjusted each year. Dynamic (Guyton-Klinger simplified): if portfolio falls below 80% of initial, cut spending 10%; if above 120%, raise 10%. Bracket-aware: spend the larger of need or top-of-bracket fill, treating withdrawals as the marginal income. Source: standard Monte Carlo, parameters from Bengen 1994 / Pfau & Kitces 2014.