American retirees are trading the 4% rule for the ‘bucket strategy.’ Should you do the same to protect your retirement?

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An older couple clink glasses with a champagne bucket between them. — YuriArcursPeopleimages / Envato

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For decades, retirees have followed the guideline to withdraw 4% of their investment portfolio each year in retirement. This maximum withdrawal rate was believed to be a sure-fire method for stretching retirement income for 30 years or more.

One of the rule’s big advantages is its simplicity, but simple doesn’t always mean better. Given how unpredictable the economy has become, the so-called 4% rule is seen as outdated, with outfits like Morningstar recommending withdrawal rates between 3.3% and 4% depending on the year (1).

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Some experts like Suze Orman agree. In a 2023 interview with Moneywise (2), Orman stated the 4% rule “doesn’t work anymore,” adding, “I think it’s very dangerous. I think it should be lowered to at least 3%.”

Other experts are less convinced. During an episode of The Dave Ramsey Show podcast, Dave Ramsey told a caller that a 3% withdrawal rate was “just wrong (3),” and in some instances, much too low.

With so much disagreement among experts, it’s no wonder that the hunt for alternative strategies is on. And now, the team at Vanguard is highlighting these new strategies to make you reconsider using the 4% rule (4).

Here’s how they could help you set more realistic financial goals for retirement.

Unlike the simple 4% rule, the bucket strategy recommends splitting your assets into different categories depending on when you expect to spend the money.

For instance, you could create an “ultra-short-term” bucket that includes your checking account for monthly living expenses and emergency savings that can be tapped into when needed.

A medium-term bucket could be set aside in relatively low-risk fixed-income securities to meet spending needs — such as a home renovation — for the next two to three years. You can also use specialized tax-advantaged accounts, such as a Health Savings Account, to create a separate bucket for medical expenses.

Finally, you could deploy the rest of your assets into a bucket of long-term investments, such as stocks or real estate, that can compound over time. This long-term bucket creates a retirement strategy based on your future needs.

By splitting your assets into these different buckets, you can adjust the risk-return profile on each so that they match the timeline of the expected expense. You can also customize them to meet your specific spending needs and lifestyle.

If you know you’re facing near-term health concerns, you can divert more of your wealth into that bucket. It could also be a good idea to consider your family’s medical history and plan accordingly.

Ultimately, the bucket approach is more nuanced than the conventional 4% rule. That means it requires more planning — and perhaps the assistance of a financial advisor — to ensure you don’t deplete your savings in retirement.

Working with a financial advisor can help you manage some of this process and make the complexities of the budget method more manageable..

But hiring the right advisor can be a lifelong commitment, which might make or break your retirement. That’s why finding reliable experts is crucial.

Fortunately, platforms like Advisor.com can help you find someone that’s right for you.

Advisor.com connects you with professional advisors in minutes. Just answer a few quick questions about yourself and your finances, and the platform will match you with experienced professionals who are suited to helping you develop your retirement plan.

You can view the advisors’ profiles, read past client reviews, and even schedule an initial consultation for free, with no obligation to hire.

If you do decide to adopt the bucket approach, you’ll also need specific savings vehicles to maximize your returns and keep your money growing.

For your short-term bucket, you could consider a high-yield savings account that offers full access to your money at all times. Having that liquidity in an emergency fund is an essential part of being able to quickly respond to a crisis with full financial force.

One way to build an emergency fund quickly is to take advantage of Wealthfront’s cash account, which offers both competitive interest rates and easy access to your cash when you need it.

A Wealthfront Cash Account currently offers a base variable APY of 3.30%, and new clients can get a 0.75% boost during their first three months on up to $150,000 for a total APY of 4.05%. That’s more than 10 times the national deposit savings rate, according to the FDIC’s February report.

With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, Wealthfront Cash Account balances of up to $8 million are insured by the FDIC through program banks.

But what about making your money grow in the long term? This is where the subject of investing in stocks and bonds typically comes up, often with something considered more stable, like an ETF or index fund.

The general rule for retirement investments is to go with a 60/40 split between stocks and bonds. However, modern investing wisdom is shifting — in part due to market uncertainty — toward including a slice of alternative assets in the mix (5). Alternative assets cover a wide number of potential investments, from cryptocurrency to private equity and fine art.

However, one of the most common alternative assets, and one you may already be invested in without fully knowing, is real estate. Opting to develop your wealth in this market can be a good way for retirees to bet on long-term growth, but it doesn’t have to be through a mortgage.

Now, there are ways to leverage real estate and access passive income opportunities without becoming a landlord.

Mogul is a real estate investment platform offering fractional ownership in blue-chip rental properties, which gives high net worth investors monthly rental income, real-time appreciation and tax benefits — without the need for a hefty down payment or late-night tenant calls.

Founded by former Goldman Sachs real estate investors, the team hand-picks the top 1% of single-family rental homes nationwide for you. Simply put, you can invest in institutional-quality offerings for a fraction of the usual cost.

Each property undergoes a vetting process, requiring a minimum 12% return even in downside scenarios. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.

To get started, sign up for an account and then browse available properties. Once you verify your information with their team, you can invest like a mogul in just a few clicks.

For those looking to test the waters without diving into real estate, another option could be to work with Arrived.

Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.

To get started, simply browse through their selection of vetted, handpicked properties. Once you find something you like, you can start investing with as little as $100, potentially earning quarterly dividends.

Once you’re an investor with Arrived, you’ll gain access to their newly launched secondary market, where investors can buy and sell shares of individual rental and vacation rental properties directly on the platform.

This allows you to buy into properties you may have missed at the initial offering or sell shares before a property reaches the end of its hold period.

With access to more than 400 properties in 60 cities, this new way to trade real estate opens up flexibility and opportunities to gain access to more properties every quarter.

Another alternative to the 4% rule is the dynamic spending plan, which was originally developed by Vanguard (6).

Instead of simply assuming you will spend 4% of your assets every year in retirement, this strategy involves setting an annual budget based on how much your assets have earned over the previous year, how much inflation you expect and what you want to spend money on in the year ahead.

So, if your portfolio jumped 8% in value last year and inflation was at 2%, you can set a budget to spend 6% or less this year. You may also need to set a floor for annual spending if the stock market returns 0% or less in any given year. For instance, you could set a flat $40,000 budget for any down years in the stock market.

In other words, with the dynamic spending approach, you’re not relying on an average estimate of stock market returns over several previous decades. Instead, you’re setting a clear target for how much you want to spend every year based on the real returns and inflation you’ve experienced over the past twelve months.

However, to set this target and keep track of your projected yearly spend, you’ll need to be more proactive about managing your money in real time.

If you are looking for more ways to manage your assets, you could use Monarch Money’s all-in-one budgeting app.

Monarch Money puts all your finances under one roof, from your banking statements to your investments. You can also add separate or joint accounts to your dashboard. The app is also well reviewed. Forbes ranked Monarch Money as their best budgeting app for 2025, as did the Wall Street Journal.

And the best part? Monarch Money offers a seven-day free trial so you can see if it’s right for you. If you like what you see, you could then snag 50% off with code WISE50.

With a full view of your finances, you can ensure you’re on track with a more complex strategy like dynamic spending.

One advantage of the dynamic spending strategy is that it adapts to the economy and your personal circumstances in real time. If the stock market had an exceptional year, you could spend more. If inflation is higher than expected, you might need to spend less.

Another upside is that your chances of running out of money in retirement could be significantly lower. Meanwhile, a potential downside is that this strategy doesn’t give you a long-term set-and-forget type plan while requiring regular maintenance.

And so, in years when the markets are down and your investments are struggling, it’s extremely important to find ways of reducing expenses wherever you can.

Luckily, as you enter retirement, senior-focused organizations like AARP offer discounts on almost everything — from prescriptions and dental plans to travel, entertainment and insurance.

As one of the most trusted organizations for older Americans, AARP not only offers money-saving perks, but they can also help you make informed financial and health decisions.

AARP members get access to guides that can help you make the most of Social Security, choose the right Medicare plan and uncover other government benefits — which could end up saving you thousands.

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Morningstar (1); @moneywisecom (2); @TheRamseyShowEpisodes (3); Vanguard (4), (6); BlackRock (5)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.