I recently revisited an article titled “Determining Withdrawal Rates Using Historical Data”[1] by William P. Bengen, creator of the 4% rule. Seeing that article took me back to 2014, when I was working with a client whose retirement income plan required an 8% withdrawal rate.
There was nothing left to cut from the budget. A part-time job wasn’t an option. Traditional planning models said it couldn’t be done. Yet the income need was real.
At that time, like many advisors, I turned to Bengen’s research. The 4% rule had become gospel in retirement planning. It was clean, simple, defensible. But in this case, it felt insufficient. An 8% withdrawal rate wasn’t just aggressive, it was widely considered impossible.
As I studied the research more carefully, I was reminded that the 4% rule was based on averages. It was the result of specific assumptions: 30-year rolling retirement periods, historical U.S. market data, defined stock/bond allocations, and inflation adjustments. The “4%” figure emerged from those parameters. The real insight in Bengen’s work was not the number itself, but the impact of sequence of returns risk.
Average returns do not determine retirement success. The order of returns does. Poor returns early in retirement, combined with ongoing withdrawals, can cause permanent damage. Strong returns early create flexibility and long-term durability.
When I reframed my client’s 8% withdrawal need through that lens, the question changed. It was no longer, “Is 8% safe?” Instead, it became, “How do we manage the sequence risk embedded in an 8% withdrawal rate?” That shift redirected the entire conversation from the percentage being withdrawn to the structure of the portfolio supporting it.
We often treat a retirement portfolio as one large bucket, a single pool of capital generating a blended return from which withdrawals are made. But balanced portfolios are not monolithic. They are collections of distinct parts. Some components produce cash flow. Some provide stability. Some drive long-term growth. Others provide liquidity.
When we focus only on the blended return, we ignore the characteristics and purpose of the individual components. And when we ignore the parts, we miss opportunities to control risk more intentionally. That realization became foundational to how I approached income planning and ultimately led to the research and development of the Portfolio Waterfall strategy.
If sequence risk is the primary threat to retirement sustainability, then managing the timing and source of withdrawals becomes more important than simply maximizing long-term average returns. Rather than withdrawing proportionally from all holdings each year, income can be sourced deliberately.
In a waterfall structure, assets are segmented by purpose and volatility. Dividends, interest, and harvested capital gains are directed into a stable cash allocation. Income withdrawals are then taken from that reserve rather than through pro rata liquidation across the entire portfolio. The objective is straightforward: avoid forced selling during downturns, harvest cash flows intentionally, and use accumulated cash to fund income needs.
By controlling which part of the portfolio funds withdrawals, instead of automatically rebalancing and withdrawing proportionally, the portfolio gains resilience against unfavorable sequences of returns.
Revisiting Bengen’s work, I realized something important. The industry did not misinterpret the 4% rule; we simply stopped short. We adopted the outcome but overlooked the mechanics that produced it. When we ignore the parts, we default to rigid withdrawal rules. When we understand the parts, we gain flexibility and potentially higher sustainable withdrawal rates.
My client did not need a miracle. They needed structure. They needed a portfolio intentionally designed around sequence risk, liquidity, and disciplined withdrawal sourcing. That experience permanently reshaped how I think about retirement income planning.
The next time someone references the 4% rule, remember: it is not about the number.
It is about the mechanics behind it. Retirement success is not determined by a single percentage, but by how the parts of a portfolio interact over time, especially in the early years. When the parts are structured correctly, what once seemed impossible can become manageable.
