While you are working, the aim is usually fairly simple: save regularly, invest the money and give it time to grow. You are used to your money going up, retirement is harder, you see your money going down.

There has been a great deal of research into how best to manage this problem. William Bengen’s work gave us the famous 4% rule and, more recently, his 4.7% SAFEMAX. Abraham Okusanya has examined the subject specifically through the eyes of a UK retiree. Jonathan Guyton and William Klinger developed rules that change withdrawals when markets move sharply.

They don’t all reach the same answer. So what is the solution ? In this guide we’ll look at the main areas of research, what they tell us and the approach we favour at Clearly Investments.

The main retirement withdrawal strategies

1. The Bengen approach: start with a withdrawal rate and increase it with inflation

William Bengen first published his retirement withdrawal research in 1994. The result became known as the 4% rule.

The basic idea was simple.

Suppose you retire with £1 million. Under a 4% rule you withdraw £40,000 during the first year. If inflation is 3%, the following year’s withdrawal becomes £41,200, irrespective of whether the portfolio itself has risen or fallen. The percentage establishes the first withdrawal; future payments then rise with inflation. You don’t calculate 4% of your portfolio every year.

Bengen has continued his research and now describes 4.7% as his Universal SAFEMAX for a 30-year retirement. His current research uses seven asset classes and a portfolio containing 55% equities, 40% bonds and 5% cash.

Bengen’s research also shows why retirement length matters. He has said that for someone planning for 50 years or more, the 4.7% figure falls to around 4.1%.

What we like about it

It gives retirees a starting point. Without one, it is difficult to know whether taking £30,000, £50,000 or £80,000 from a £1 million portfolio is reasonable.

Where it falls short

If markets fall 30%, carrying on increasing your spending automatically with inflation may be uncomfortable. At the other extreme, if your investments perform very well for 15 years, and you follow the original withdrawal calculation then you could afford to spend more. Bengen himself now argues that retirement plans should be reviewed and adjusted rather than set once and forgotten.

2. Taking a fixed percentage of the portfolio

Another method is to take, say, 4% of whatever the portfolio is worth each year. If £1 million becomes £1.1 million: 4% = £44,000

But if it falls to £800,000: 4% = £32,000

This greatly reduces the chance of exhausting the portfolio because your spending automatically falls after investment losses.

There is an obvious drawback. Your income moves with the markets. Someone who needs £40,000 every year to pay unavoidable bills probably won’t be happy to discover that the investment markets have reduced next year’s budget to £32,000. Percentage-based withdrawals reduce the chance of running out of money, but they can produce sizeable changes in living standards.

3. Guyton-Klinger: put guardrails around your spending

Jonathan Guyton and William Klinger took a different approach. Rather than pretending that spending can remain unchanged whatever markets do, they developed rules that tell the retiree when to adjust.

Their 2006 research uses two main guardrails. Suppose your starting withdrawal rate is 5%.

The capital preservation rule is triggered if your investments fall so that the withdrawal rises above 6%.

The prosperity rule works in the other direction. If strong investment returns reduce the current withdrawal rate below 4%, 20% below the starting level, spending can increase by 10%.

There is also an inflation rule. After a negative investment year, the normal inflation increase may be skipped if the current withdrawal rate is already above its starting level.

Guyton and Klinger’s research found that, using their rules, initial rates of around 5.2% to 5.6% could be supported in their models with portfolios containing at least 65% equities. The price for starting higher was accepting that future spending could be cut. That trade-off matters.

A 5.5% withdrawal with a willingness to reduce holidays, restaurants and other optional spending after a bad market may be perfectly workable for one household. Someone whose entire withdrawal pays essential bills needs something different.

4. Living on dividends and interest

Many investors instinctively like this idea:

“I’ll never touch the capital. I’ll simply live on the income.”

The attraction is obvious. Shares pay dividends, bonds pay interest and the investments remain in place.

Unfortunately, the distinction between “income” and “capital” isn’t as useful as it first appears.

Dividends aren’t guaranteed. A portfolio built mainly around high-dividend shares can become concentrated in certain companies and sectors. Investors can also end up buying higher-risk bonds simply because they produce more income.

There is plenty of research which argues instead for a total-return approach, where spending can come from dividends, bond interest and selling part of investments. This allows the asset allocation to be selected according to the investor’s risk and return needs rather than the yield required to fund spending.

Suppose your portfolio needs to provide £40,000. It makes little financial sense to redesign the entire portfolio to produce a 4% income yield if a better-diversified portfolio naturally produces £25,000 of income. You could simply sell £15,000 of investments. This is our view, we prefer a total return approach, our view is it doesn’t matter where your returns come from.

5. The bucket strategy

The bucket approach separates money according to when it is likely to be spent.

A simple version might contain:

Bucket 1: Cash – Money needed during the next 12 months.

Bucket 2: Government bonds – Money likely to be needed during roughly the following two to four years.

Bucket 3: Long-term investments – Money that should not be needed for several years and can remain invested for growth.

This approach doesn’t remove investment risk. Nor does putting money into different “buckets” create extra returns.

But a retiree doesn’t want to wake up after a 20% stock-market fall and discover that this month’s food bill requires selling shares at depressed prices. Having near-term spending already funded provides time for long-term investments to recover.

It suggests retirees may want to hold one to three years of planned spending in lower-risk investments and use cash during weak markets rather than automatically selling investments after a fall.

We’ll return to how Clearly Investments would structure this shortly.

6. Cover essential spending with guaranteed income

Abraham Okusanya’s Beyond the 4% Rule discusses two broad schools of retirement income planning: safety-first and probability-based.

A safety-first investor starts by asking which expenses simply cannot be allowed to depend on investment markets.

State Pension and defined-benefit pensions already provide guaranteed income for many retirees. An annuity can add another guaranteed income stream.

Money needed for holidays, new cars or helping children might then come from the investment portfolio.

Okusanya contrasts this with the probability-based approach, where investments fund spending and the investor accepts some chance that future outcomes will differ from the original plan.

These approaches can be combined.

Someone might cover most household bills with State Pension, a defined-benefit pension and perhaps an annuity, while using an ISA and pension drawdown portfolio for holidays and other optional spending.

That can make flexible withdrawal rules much easier to live with.

Five things the retirement research tells us

1. The first few years matter far more than most investors realise

Imagine two retirees. Both earn exactly the same average investment return over 20 years. One gets several poor years at the beginning followed by good returns. The other enjoys good returns first and suffers the poor years much later.

Their outcomes can be dramatically different. Because the first retiree has to sell investments while prices are depressed. Those units are gone permanently and can’t take part in the eventual recovery.

This is sequence-of-returns risk.

Okusanya makes it one of the central risks of retirement investing. His work points out that returns during the first decade of retirement have a disproportionate effect on the eventual outcome because withdrawals magnify the effect of early losses.

Morningstar’s 2026 UK research reaches a similar conclusion. Among simulated all-equity portfolios that failed, nearly 65% had suffered losses during the first five years.

This is one of the strongest arguments for having a withdrawal plan before retirement starts.

2. There isn’t one correct withdrawal rate

The 4% rule sounds reassuringly precise. But in reality it is just too simple.

Your sustainable rate depends on:

how long the money may need to last;
how much guaranteed income you have;
your investment mix;
market valuations and inflation when retirement begins;
whether you can reduce discretionary spending;
costs and tax.

Bengen’s historical research gives 4.7% as his current Universal SAFEMAX for a 30-year period. Morningstar’s forward-looking UK research currently gives 4.1% for a different set of assumptions.

We don’t see that difference as a problem. There will always be different views, what you can is use the research to build a range, then test your own plan.

3. Asset allocation matters

Retirement doesn’t mean that everything should move into cash or low risk investments.

A person retiring at 60 could still be investing at 80 or 90. Inflation means that part of the portfolio needs enough growth to protect spending power over that period.

But 100% equities introduces another problem: large market falls at exactly the time money is being withdrawn.

Bengen’s work found a fairly broad range of stock allocations produced similar results in his historical worst case. He found that allocations between roughly 46% and 73% equities generated similar maximum withdrawal rates for the 1968 retiree who produced his toughest historical outcome.

Morningstar’s current UK research gives bonds a much bigger role. For a 30-year period, its highest starting withdrawal rate came from portfolios with around 70% in bonds and cash and 30% in shares. Why the difference? Partly methodology, but also current bond yields.

Asset allocation during retirement has two jobs. It needs enough defensive assets to survive poor markets, while retaining enough growth to fund a retirement that could last decades.

Your asset allocation, is one of the most important things to think about, it should reflect your risk capacity, composure and required return.

4. Higher bond yields have changed the retirement calculation

For much of the 2010s, bonds presented retirees with an awkward choice. Yields were extremely low, so holding several years of expenditure in fixed income carried a significant opportunity cost.

That position has changed.

As at 21 August 2026, a range of UK government bonds maturing between 2028 and 2031 offered yields to maturity of roughly 4.1% to 4.6%.

That doesn’t mean bonds are risk-free if you sell them early. Their market prices can rise and fall.

A bond ladder deals with that problem differently.

Buy a gilt with the intention of holding it until a particular year’s expenditure is needed. Provided the UK Government meets its obligations, the investor knows the maturity value in advance. Each maturity can then fund the next cash requirement.

Higher yields mean the defensive part of a retirement portfolio now has a better chance of producing a meaningful return while it waits.

Morningstar’s 2026 UK research specifically identifies higher bond yields as one reason bonds can now support higher retirement withdrawals than during the ultra-low-rate period.

5. Flexibility is worth a lot

Retirement research repeatedly arrives at the same practical lesson: small adjustments can make a big difference.

You don’t necessarily need to cancel every holiday after a bad year. But blindly increasing every withdrawal by inflation regardless of what has happened to your portfolio doesn’t make much sense either.

Guyton-Klinger provides formal rules for making those changes.

Bengen now also stresses that a withdrawal plan should change as circumstances develop. Morningstar finds that flexible strategies generally permit higher lifetime withdrawals because spending falls when the portfolio is under stress.

Actual retiree spending also rarely follows a perfect inflation-linked line. David Blanchett’s latest 2026 work finds that real spending typically declines as retirees age, although health and care costs can alter the pattern later in life.

The Clearly Investments approach: Start with a withdrawal rate, use buckets and set guardrails for future returns

Our preferred method brings several parts of the research together.

We would start with Bengen’s 4.7% figure as a planning reference, create a cash and government-bond reserve, invest the remaining money for the longer term, then apply flexible rules for replenishing those reserves.

This is our application of the research.

Step 1: Calculate the starting withdrawal

Providing you have at least 50% equity allocation, we consider a starting withdrawal of between 4% – 4.7% is realistic, for a thirty year retirement.

One way to think about it very simply, if you look at long term returns for a 60% equity / 40% bond portfolio, these are between 6-7%.

Whilst the target for inflation is 2%, we have seen this running higher, and I think a 3% number is much better for calculations.

So in broad terms, if you achieve a 6% return, spend 4.7% and inflation is say 3%, in real terms your pension has will fall by approximately 1.7% (i.e. 6% less 4.7% withdrawal and 3% inflation). It is important to understand these numbers are very broad, not exact, in no one year will you achieve a exactly 6% return, but over a long period of time these are reasonable starting assumptions.

Bucket 1: Keep 12 months’ withdrawals in cash

The first bucket should contain roughly the amount the portfolio will need to provide during the next 12 months.

This money isn’t trying to produce the highest return. Its job is to pay bills without requiring investments to be sold at an inconvenient time.

Bucket 2: Put the next two to four years into a government-bond ladder

The second bucket contains government bonds with different maturity dates.

Imagine the portfolio needs to provide £30,000 a year.

A three-year ladder might contain approximately:

When money is needed	Investment
Next 12 months	£47,000 cash
Year 2	£30,000 gilt maturing around Year 2
Year 3	£30,000 gilt maturing around Year 3
Year 4	£30,000 gilt maturing around Year 4

The aim isn’t to trade these bonds. It is to hold each gilt until maturity. Then when the gilt matures, its capital becomes the following year’s cash. Your cash bucket therefore replenishes itself from scheduled bond maturities.

With short-dated gilts currently yielding around 4% or more, that part of the portfolio is now earning considerably more than it would have during the era of near-zero interest rates.

Bucket 3: Invest everything else for the long term

With the remainder of the money, in the above example, this will not be needed for at least four years, and much of it won’t be needed for decades.

The point here is you have created a good cushion in your cash flow, so your asset allocation for these monies can therefore be based on this longer timescale. In this way you can look for higher returns from this element of your money.

How do you refill the buckets?

This is the part that makes the strategy work. Don’t automatically rebuild everything to the same level every January. Instead, allow markets to influence when you sell long-term investments.

After strong investment markets

Suppose equities have performed well. Sell part of the long-term portfolio and buy another government bond maturing at the end of the ladder.

A ladder covering only two further years might therefore move back towards three or four years.

You have effectively taken some profits and moved future spending into assets with known maturity dates.

After weak investment markets

Suppose equities fall sharply. Your existing cash and bond maturities provide time.

Rather than selling equities simply to maintain a four-year bond reserve, you might allow the ladder to shorten towards two years.

That gives long-term investments more time to recover.

Add guardrails when rebuilding the bond bucket

Guyton-Klinger’s original guardrails control spending, rather than telling investors when to buy government bonds. But we think the same principle can also help with bucket management.

If markets have performed strongly, you could sell down equities from your investment bucket and top up your government bond portfolio, by buying a government bond which matures in the following year.

But where markets have fallen, you wait, remember you can wait up to four years in the above example, my definition here is markets have risen or fallen, is if your long run return is below your target return, in the above example 6%.

You can also consider here the amount to withdraw, whilst you may have started at 4.7% plus inflation, after strong performance, this can be increased.

Should I buy dividend stocks and target an income from my portfolio?

Dividends, interest and bond coupons should all contribute towards your income. But we wouldn’t insist that they provide all of it.

Imagine the long-term portfolio produces 2.5% naturally but you need a 4% withdrawal.

Trying to force the portfolio’s yield from 2.5% to 4% could lead you towards high-dividend shares or lower-quality bonds.

We would rather maintain the desired asset allocation and sell investments when required.

The refill process provides a natural opportunity to do this. After strong markets, sell part of whichever investments have moved above their target allocation and use the proceeds to buy the next gilt in the ladder.

Income and capital are simply two sources of total return.

What about tax?

The withdrawal rate tells you roughly how much the portfolio may support. It doesn’t tell you which account should provide the money.

A retiree could hold assets across pensions, ISAs, cash accounts and taxable investment accounts. Taking £40,000 from one combination could produce a different tax bill from taking the same £40,000 another way.

For that reason we would treat these as two linked decisions:

Decision one: How much can the overall investment portfolio sustainably provide?

Decision two: Where should that money come from this year?

The second question deserves its own plan. We will write about this separately.

What Clearly Investments would do

For an investor using flexible drawdown, our preferred framework is:

1. Estimate the portfolio withdrawal required rather than starting with salary replacement.

2. Use 4.7% as an initial Bengen-based reference, while considering lower withdrawal rates and for longer retirement periods.

3. Keep around 12 months of planned withdrawals in cash.

4. Hold roughly the following two to four years in a ladder of UK government bonds.

5. Invest the remaining portfolio for long-term growth using an asset allocation suited to the investor’s risk profile and required return.

6. Allow maturing gilts to refill the cash bucket automatically.

7. Refill the gilt ladder mainly after stronger investment periods rather than selling long-term assets mechanically every year.

8. Use guardrails. If the withdrawal rate rises sharply after poor returns, consider cutting discretionary spending and allowing the gilt ladder to shorten. If markets have been strong, extend the ladder and reassess whether spending can increase.

It isn’t the only way to fund retirement. But we think it deals sensibly with the two conflicting demands retirees face: you need dependable money to spend next year, while still needing investment growth for money you might spend 20 years from now.

One final thought

Retirement withdrawal planning often starts with the question:

“What is the safe withdrawal rate?”

A better question is:

“How do I create an income plan that gives me more certainty?“

Bengen gives us a starting number. Okusanya shows why retirement investing needs to be treated differently from saving for retirement. Guyton and Klinger show the value of changing course when the numbers move outside sensible limits.

Our preferred bucket approach turns those ideas into something practical: cash for now, government bonds for the next few years and investments for later, with written rules for moving money between them.

That is a much better retirement plan than choosing 4%, setting up a monthly withdrawal and hoping the next 30 years cooperate.

This article is for educational purposes and isn’t personal financial advice. Retirement income decisions depend on your individual circumstances, tax position, investment portfolio, spending requirements and willingness to change withdrawals. If you are unsure, consider regulated financial advice.

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