The 4% rule is the old standby for drawing down your retirement portfolio. But there's another -- arguably better -- way: the RMD strategy lets you live large when markets soar, but won't wipe you out when they crater.
The Internal Revenue Service mandates that you use RMDs, required minimum distributions, for your tax-deferred accounts once you hit 73 if you were born before 1960. (It's 75 if you were born in '60 or later.)
But you can use the agency's RMD tables to safely draw down your entire portfolio starting at any age.
Of course, there are a multitude of drawdown strategies. With the 4% rule, you withdraw that percentage annually -- increasing it each year to keep up with inflation. It's static, meaning your yearly draws aren't affected by how markets perform.
The RMD approach, on the other hand, is dynamic. When markets soar, your RMD climbs along with your portfolio. And when markets slump, so does your RMD. That puts less pressure on your portfolio in down times than the 4% rule.
But it also means your withdrawal can drop dramatically from one year to the next. And therein lies the rub. Because the strategy is so volatile, it's really only suitable if you already have enough stable income -- Social Security or pensions, for example -- to cover essential expenses, says economist Wade Pfau, author of the Retirement Planning Guidebook.
That said, the RMD approach does surprisingly well in rocky markets. Pfau, at Barron's request, analyzed how the RMD method would have performed for someone retiring with $1 million right before the crummy stock markets and high inflation of the 1970s -- by most measures the worst time to retire in the last century.
Under the RMD approach, Pfau ran the numbers for someone taking a 30-year retirement from 1966 to 1995. It was a brutal period for retirees. The stock market hit a high in 1968, and didn't go above that number -- and hold it -- until 1982. And inflation began ratcheting up in the mid-1960s and crested at more than 14% in 1980, according to this Federal Reserve historical essay.
The IRS has several tables to determine your RMD, depending on your situation. The IRS uniform lifetime table -- used by most retirees -- begins at age 72 so Pfau combined it with another table to calculate RMDs for younger retirees. He then adjusted all numbers for inflation during a 30-year retirement.
In 1966, a 65-year-old in their first year of retirement would have taken a $29,499 RMD from a $1 million portfolio. In 1975, a tough stock market would have knocked around your portfolio, dropping your RMD to just $17,776. But eventually markets recovered, and your RMDs soared. By 1995, your RMD would have climbed to $70,029 . Even better, there would still be $818,926 in your account.
In other words, your portfolio would have retained 82% of its original buying power despite funding a 30-year retirement during some of the worst markets and highest inflation of the past century.
With the 4% approach -- actually 4.o3% in Pfau's analysis -- you would have had a quite different outcome. Pfau started with a $40,300 withdrawal and increased that number each year for inflation for the next 30 years. The final year you would have received exactly that same amount in inflation-adjusted dollars.
You wouldn't have had the ups and downs of the RMD approach. But at the end of 30 years, the amount in your retirement account? Just $2,908. If you lived beyond 30 years, you would have been in trouble -- and nothing left for your heirs.
The 1970s were an anomaly. Most of the time, markets go up and the RMD approach results in far bigger withdrawals than the 4% rule.
In fact, when Morningstar analyzed different withdrawal strategies, it found that the RMD approach, on average, usually provides the highest withdrawals and leaves the smallest balance at the end.
"Usually the RMD rule will spend your portfolio down more aggressively than the 4% rule," Pfau said. "But that is not the case with the historical worst year to retire, which was 1966."
This charts shows how much money you should withdraw under the RMD rule and two more aggressive variations of it.
One criticism of the RMD approach is that it tends to give retirees smaller withdrawals early in retirement when they often travel and spend more, and higher withdrawals later in retirement, when spending tends to decline.
Pfau has a fix for that. You can multiply all the RMD numbers by 1.65. That gives you bigger withdrawals in the early years, but you still don't run out of money as you get older. Starting your retirement in 1966, you would have had a $38,905 withdrawals your final year and a substantial amount left in your portfolio: $254,650 -- unlike the 4% approach.
If you really want to live large early in retirement, you can multiply your RMD numbers by 3. You would have started out in 1966 with an $88,496 withdrawal -- more than twice that of 4% rule. But the portfolio would have been so depleted by the 30th year, that your withdrawal would have been only $6,241. And the amount left in your portfolio after three decades of spending: $18,605.
The takeaway is don't consider RMD-by-3 unless you have the resources to live without your retirement portfolio at some point.
"It's really just a way to aggressively spend your surpluses," Pfau said. "You're going to get very low retirement balances."
The Pfau analysis shows how the various approaches performed in the worst period for retirees in the last century. In a time of rising markets, you would have gotten both higher withdrawals and higher ending balances with any of the three RMD approaches outlined above.
"If your priority is spending as much as you can during your own life time, I think the RMD approach can be pretty attractive as long as you're willing to live with difference in cash flows from year to year," says Amy Arnott, a portfolio strategist with Morningstar, which ran its own analysis.
Indeed, in an up market, because its withdrawals are fixed, the 4% rule will restrain your spending the most but also give you the biggest ending balance in your portfolio.
"You end up with a huge amount of money on the table you could have spent and didn't," Arnott says.
Write to Neal Templin at neal.templin@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 14, 2026 13:57 ET (17:57 GMT)
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