Two Smart Retirement Spending Strategies—Which One Fits You?

When it comes to retirement planning, most people focus on saving and investing during their working years—which is great. But one of the most overlooked (and most important) parts of the retirement equation is this:

How will you actually use that money once you retire?

Without a clear plan for spending in retirement, even the most well-funded nest egg can feel uncertain. That’s where a retirement spending plan comes in.

At The Noble Group, we help individuals and families transition from savers to smart spenders—because knowing how to withdraw your money is just as important as knowing how to grow it.

Below, we’ll explore two of the most common—and effective—strategies retirees use to manage withdrawals: the 4% Rule and the Bucket Strategy. Both approaches can work, but which is right for you depends on your goals, risk tolerance, and lifestyle.

Strategy 1: The 4% Rule

The 4% rule is a classic approach. It suggests that if you withdraw 4% of your retirement savings in your first year of retirement and adjust for inflation each year, your money should last about 30 years.

Example:

Let’s look at Sarah. She retired at 65 with $1.5 million saved across her retirement accounts. By applying the 4% rule, Sarah withdrew $60,000 her first year. The structure and predictability gave her confidence, especially since she didn’t anticipate major lifestyle changes or surprise expenses. She also liked how easy it was to implement.

But while it’s simple, this strategy has limitations. Market volatility can disrupt long-term success. If your investments take a hit early in retirement, it might be hard to recover while still drawing income. That’s where the second strategy can provide added flexibility.

Strategy 2: The Bucket Approach

The bucket strategy divides your savings into three time-based “buckets”:

• Short-Term Bucket: Holds 1–2 years of cash for daily living expenses

• Mid-Term Bucket: Invested conservatively for expenses in the next 3–10 years

• Long-Term Bucket: Invested for growth to cover expenses in later retirement

Example:

Mike and Dana, both 66, retired with $1.2 million. Rather than pulling a fixed amount each year, they set aside $100,000 in cash—about 18 months of spending. Their mid-term bucket was allocated more conservatively to cover the next 7–10 years, and their long-term investments stayed in the market with growth in mind.

Every year, they "refilled" their short-term bucket by drawing from the other two as needed. This structure allowed them to ride out market dips without panicking, knowing their near-term needs were always covered.

The result? A more dynamic, flexible income strategy that gave them reassurance.

Don’t Forget: The Order of Withdrawals Matters

Regardless of which spending plan you choose, the order in which you withdraw from your accounts can have major tax implications.

Many retirees start by withdrawing from taxable investment accounts, which allows tax-deferred accounts like traditional IRAs and 401(k)s to keep growing. But be mindful—required minimum distributions (RMDs) begin at age 73. If your account balances are too large, these forced withdrawals can push you into a higher tax bracket.

In some cases, it makes sense to begin taking small withdrawals from retirement accounts as early as age 59½, spreading out the tax impact and minimizing future RMDs.

The Takeaway: Customize, Then Stay Flexible

The best retirement income plan is one that’s designed around your life. That means:

• Factoring in your expected expenses

• Considering your tax bracket, now and in the future

• Choosing a withdrawal strategy that matches your comfort with market risk

• Adjusting your plan as life—and markets—change

At The Noble Group, we work with clients to design customized retirement income strategies that evolve with them over time.

Important Information

This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing. All investing includes risks, including fluctuating prices and loss of principal.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

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