Flexible 3% proposed as alternative to 4% retirement rule

Steven Dolvin and Bryan Foltice, finance professors at Butler University’s Lacy School of Business, propose a ‘flexible 3%’ retirement withdrawal rule. The plan pairs a 3% baseline withdrawal indexed for inflation with performance-based top-ups.

The authors developed the proposal in response to concerns that the traditional 4% guideline becomes less reliable as retirement horizons lengthen. Foltice, one of the paper’s authors, said, ‘You can restart the process and continue getting income if you outlive your time horizon.’ He cited retirees who stop working in their 40s as an example of longer horizons that increase the chance of depleting assets under a fixed-rate plan.

Under the flexible 3% method, the fixed base preserves a conservative withdrawal level while additional withdrawals depend on portfolio performance. The authors say the structure is designed to smooth income and protect principal during weak market stretches.

The paper includes simulations that compare the flexible 3% approach with fixed 4% withdrawals across multiple time horizons. The authors report lower failure rates and larger end balances in many of the flexible-3% scenarios.

The researchers and advisors highlighted implementation issues. The paper notes that taxes and required minimum distributions from retirement accounts can affect the timing and source of withdrawals. Alicia Fuller, founder of Coastal 360 Capital Advisors, observed that wealthier clients often delay taking retirement account distributions until required minimums apply. Charles Failla, founder of Sovereign Financial Group, favors a detailed annual cash-flow analysis and a time-horizon asset management approach that keeps short-term needs in conservative investments and places longer-term funds in more growth-oriented holdings.

The paper presents the flexible 3% rule as an alternative for planners and retirees who face long retirement horizons and variable market returns.