The 4% rule, in which retirees withdraw 4% of their retirement account in the first year and then adjust that amount annually based on inflation, has long been a standard rule of thumb. Research by Stefan Sharkansky, Ph.D. a statistician specializing in finance, challenges this conventional wisdom.

"While there is a wealth of retirement advice available today, much of it is either overly simplistic or difficult to implement,” he said. “Many guidelines focus too heavily on portfolio preservation, relying on problematic frameworks like the 4% rule, which can lead investors to underspend and leave them vulnerable to market downturns.”

Sharkansky’s research builds upon the Annually Recalculated Virtual Annuity Approach (ARVA) introduced in 2015. He proposes a modern framework for decumulation centered around a ladder of Treasury Inflation-Protected Securities (TIPS) and a low-cost stock index fund, empowering retirees to safely spend more of their wealth while avoiding both premature portfolio depletion and unnecessary underspending.

Highlights of the research include:

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

"The findings present a valuable contribution to research on sustainable retirement spending," said Wade Pfau, Ph.D., author of Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success. “By combining a ladder of inflation-protected bonds (like TIPS) with a stock market index fund, it shows how retirees can manage longevity risk, adjust for changing spending needs and draw variable income without running out of money."

To support implementation of the new retirement spending strategy, Sharkansky launched The Best Third, a website that allows both investors and financial advisors to explore and test the framework for free. Users can adjust inputs retirement age, portfolio value, income needs, and confidence levels to generate customized, tax-aware income plans.

"We often hear that our retirement years should be about enjoying the fruits of our labor,” Sharkansky said. “This new research can help retirees feel more confident with their retirement plans."

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