What Your Sustainable Withdrawal Rate Should Be

A lot of people have heard of the 4% rule, the idea that you can withdraw 4% of your portfolio every year for a 30-year retirement. But that rule is old, and even Bill Bengen the man who created it says most retirees can safely withdraw more. A realistic number today for many people is closer to 5%, depending on your asset allocation and how long you expect retirement to last. For example, if I have a $1 million portfolio, a 5% withdrawal rate gives me a retirement paycheck of $50,000 a year. That’s the foundation of my income plan.

How Taxes Affect Your Retirement Paycheck

Taxes in retirement work very differently from taxes during your working years. You’re no longer paying payroll taxes. You get a higher standard deduction once you turn 65. And depending on your income, 0%, 50%, or 85% of your Social Security benefit may be taxable. This is why tax planning is so important you can dramatically lower your effective tax rate in retirement simply by choosing where and when to withdraw your income. Your retirement income is not taxed equally. Withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income. Withdrawals from brokerage accounts are taxed based on capital gains. Withdrawals from Roth IRAs are completely tax-free.

Mary’s Real-Life Retirement Income Plan

Let me give you a real example, because this is where everything comes together. Mary is 65, has saved $1 million, and is ready to retire. She has $700,000 in a traditional IRA and $300,000 in a brokerage account. She also receives $30,000 a year from Social Security. To build her retirement paycheck, Mary takes $40,000 from her IRA and $30,000 from her brokerage account, giving her a total annual retirement income of $100,000. But here’s the key: even though she’s taking six figures in income, her tax bill is only about $6,121. That’s because her income sources are taxed at different rates, and she benefits from the higher standard deduction for those over 65. Before retiring, Mary’s effective tax rate was 21.5%. Now it’s dramatically lower even though her lifestyle hasn’t changed.

Coordinating Your Income Sources

Creating a retirement paycheck means taking the right amount from the right accounts at the right time. Social Security, IRA withdrawals, Roth withdrawals, pensions, and brokerage draws all interact differently with taxes. You’re allowed to design your own monthly paycheck and adjust it as needed. That flexibility is one of the biggest advantages retirees have. For Mary, coordinating Social Security with a mix of IRA withdrawals and brokerage sales ensures a steady cash flow and keeps her tax bracket low. No employer paycheck tells her when to get paid anymore she decides.

When Your Social Security Check Arrives

Your Social Security payment date depends on your birthday: if you were born between the 1st–10th, you’re paid on the second Wednesday; between the 11th–20th, it’s the third Wednesday; between the 21st–31st, it’s the fourth Wednesday. Knowing this helps you structure your withdrawals and household cash flow so you’re never scrambling.

How Spending Changes Throughout Retirement

Most retirees don’t spend the same amount every year. Instead, spending follows what we call the retirement spending smile. You spend more in your 60s because you’re traveling, active, and enjoying freedom. Spending declines in your 70s and early 80s as life slows down. Then medical expenses pick up again in the later years. Understanding this pattern helps you plan your withdrawals more accurately so you don’t overspend early or underspend later.

Using Home Equity as Part of Your Plan

For many retirees, home equity is their largest asset outside of their investment accounts. Whether you stay in your home, downsize, or sell it entirely, home equity can provide additional flexibility. It’s not always necessary to use it but it gives you options, especially if your portfolio alone feels tight.

Building a Stable, Sustainable Retirement Paycheck

A smart retirement paycheck blends sustainable withdrawals, tax efficiency, flexible planning, and a clear understanding of how your spending will change over time. When you put all of these pieces together just like Mary you can create a retirement income plan that is reliable, predictable, and built to last.

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.

Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

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