The 4% rule for retirement spending comes from a 1994 paper by financial planner William Bengen called Determining Withdrawal Rates Using Historical Data . Bengen showed that portfolios with 50% to 75% U.S. stocks and the rest in intermediate-term treasuries would last for 30+ years with yearly inflation-adjusted withdrawals of 4% of the starting portfolio value. However, Bengen assumed that you don’t pay any investment fees. Here I replicate Bengen’s study and look at how fees affect the results. The retirement spending plan tested by Bengen differs from my ideas on Cushioned Retirement Investing in two main ways. With cushioning, you adapt your spending somewhat if investment returns severely disappoint, and the cushion leads to your portfolio volatility dropping through retirement. Bengen tested a strategy where you choose the withdrawal amount based on your portfolio size at the start of retirement. Once the withdrawal amount is set, you only adjust it for inflation. Benge...

Most of us believe that we should reduce the riskiness of our portfolios when we retire. However, there is little agreement on exactly how to do this. One common rule of thumb is to use your age as your percentage in bonds. However, such fixed rules just don’t take into account people’s unique circumstances. I prefer a technique I call Cushioned Retirement Investing to reduce risk. This technique is based on the simple principle that you shouldn’t invest money you’ll need in the next 5 years in risky investments. There is nothing magical about the 5-year threshold. More daring types may choose 3 years, and more conservative types may prefer 7 years. I’ll stick to the 5-year figure for this discussion. The main idea is that you keep any money you’ll need in the next 5 years out of the main part of your portfolio. Because the main part of your portfolio only holds funds that will be there for 5+ years, it can stick to your preferred asset allocation for your entire life. If...