The long-standing 4% rule for retirement spending is facing scrutiny as market experts debate the best way to preserve savings. While some proponents suggest retirees could safely spend even more than the traditional benchmark, John Montgomery of Bridgeway Capital Management argues for a more conservative approach.
Montgomery suggests limiting withdrawals to 2.8% of a portfolio value, measured from the last market peak. This strategy relies on a more aggressive asset allocation, specifically holding 90% in stocks and 10% in bonds. By maintaining this heavy equity tilt, the portfolio aims for higher growth potential, which helps offset the lower withdrawal rate.
This framework provides a buffer during market volatility. Because the withdrawal amount remains tied to past peaks rather than current market fluctuations, retirees can maintain their standard of living even during sell-offs. Montgomery notes that this method is designed to avoid the risk of running out of money, ensuring the portfolio continues to grow over time.
This position contrasts with those who advocate for spending down savings to maximize life experiences. Montgomery maintains that an ultra-conservative withdrawal rate is prudent, especially given uncertainty regarding longevity. For him, the strategy provides security against outliving assets while leaving resources for family or charitable legacies.