{"id":395752,"date":"2025-11-22T00:25:16","date_gmt":"2025-11-22T00:25:16","guid":{"rendered":"https:\/\/www.europesays.com\/us\/395752\/"},"modified":"2025-11-22T00:25:16","modified_gmt":"2025-11-22T00:25:16","slug":"new-retirement-rule-creates-safer-spending","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/395752\/","title":{"rendered":"New Retirement Rule Creates Safer Spending"},"content":{"rendered":"

\"With <\/p>\n

\n kate_sept2004 \/ iStock.com <\/p>\n

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The \u201c4% rule\u201d has long guided retirement spending \u2014 but even its creator now says it falls short<\/a>. A new strategy from Stefan Sharkansky, Ph.D. and founder of The Best Third<\/a>, offered a safer, more flexible alternative.<\/p>\n

Here\u2019s how his strategy works<\/a>.<\/p>\n

What Is the ARVA Method?<\/p>\n

Sharkansky recommends the Annually Recalculated Virtual Annuity (ARVA) method for spending in retirement<\/a>. With this approach, your retirement portfolio should contain only two types of assets \u2014 a ladder of Treasury Inflation-Protected Securities (TIPS) and a low-cost stock market index fund.<\/p>\n<\/p>\n

How TIPS Provide Guaranteed Income<\/p>\n

\u201cWith TIPS, the dollar amounts of semi-annual interest payments and the bond principal that is repaid to you at maturity are adjusted upwards with inflation,\u201d Sharkansky said. \u201cSo, unlike ordinary bonds whose dollar values are fixed, TIPS preserve your purchasing power. They\u2019re the safest investment in the marketplace.\u201d <\/p>\n

Retirees should own individual TIPS bonds in a \u201cladder.\u201d <\/p>\n

\u201cThat means you have bonds that mature each year in your retirement period, up to 30 years,\u201d Sharkansky said. \u201cEach year, the maturing bonds \u2014 along with interest payments from later maturing bonds \u2014 provide a guaranteed source of income.\u201d <\/p>\n

At current interest rates, a 30-year TIPS ladder will pay out 4.5% of the initial investment every year, adjusted for inflation. <\/p>\n

\u201cA TIPS ladder today, all by itself, is better than the 4% rule,\u201d Sharkansky said.<\/p>\n

Creating a Retirement Salary and Bonus<\/p>\n

Combining a TIPS ladder with a stock fund creates what Sharkansky calls a \u201csalary plus bonus\u201d retirement income<\/a>.<\/p>\n

\u201cMany people in their working years are used to getting a base salary that they can count on, plus a bonus that can be a large part of their total income, but can vary from year to year,\u201d he said. \u201cWith ARVA, the secure base \u2018salary\u2019 consists of Social Security, any pension you might have, other income like rental income, plus the guaranteed income from the TIPS ladder.\u201d <\/p>\n

You should invest enough in the TIPS ladder to reach the level of secure \u201csalary\u201d that you need to feel comfortable. Any extra funds should be invested in the stock index fund. <\/p>\n

\u201cThis will provide you with your \u2018bonus\u2019 income, which will vary with stock market performance,\u201d Sharkansky said. \u201cWhen markets are up, you will get a larger bonus than when markets are down. But every year you will get a bonus.\u201d <\/p>\n

In an average year, the pay-out rate from your stock fund will be higher than the pay-out rate from the TIPS ladder, but in some years it will be lower. <\/p>\n

\u201cTo smooth out the ups and downs, you hold both the TIPS for guaranteed, but probably lower income, along with stocks for probably higher, but variable income,\u201d Sharkansky said.<\/p>\n

Why ARVA Beats the 4% Rule<\/p>\n

Sharkansky sees three main problems with the 4% rule:<\/p>\n

    \n
  1. The 4% withdrawal rate is not actually \u201csafe.\u201d<\/strong> \u201cThe actual market returns that a person faces in retirement don\u2019t necessarily follow the assumptions of a simulation. If the sequence of market returns in your retirement is at the lowest end of what the simulation thought was possible, you will either run out of money in retirement, or you\u2019ll have to take sharp reductions in your spending.\u201d<\/li>\n
  2. On the flip side, you could end up spending less than you can actually afford.<\/strong> \u201cIn a very high percentage of scenarios, you will have money left over at the end of your plan. The most likely outcome with a 4% rate is that after saving for so many years, in retirement, you end up spending less than you can afford and not enjoying the standard of living and quality of life that you can afford.\u201d<\/li>\n
  3. Consistent withdrawals likely won\u2019t match your actual needs, which can vary with time. <\/strong>\u201cA retiree\u2019s spending pattern changes as they age.\u201d<\/li>\n<\/ol>\n

    \u201cARVA is a better alternative because it solves all three of the above-mentioned problems with constant withdrawal rates,\u201d Sharkansky said. \u201cIt allows you to spend more while you\u2019re alive, but without the risk of running out of money.\u201d <\/p>\n

    ARVA allows you to take into account the anticipated changes to your spending needs and wants<\/a>, as well as changes to your tax obligations. <\/p>\n

    \u201cYou can adjust your plan during retirement if your circumstances change,\u201d Sharkansky said.<\/p>\n

    Sharkansky\u2019s ARVA method offers retirees a way to spend confidently and flexibly. You can explore the strategy and build your own plan at TheBestThird.com.<\/p><\/p>\n","protected":false},"excerpt":{"rendered":"kate_sept2004 \/ iStock.com Commitment to Our Readers GOBankingRates’ editorial team is committed to bringing you unbiased reviews and…\n","protected":false},"author":3,"featured_media":247192,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[64,8726,255,615,700,67,132,68],"class_list":{"0":"post-395752","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-gobankingrates","10":"tag-personal-finance","11":"tag-planning","12":"tag-retirement","13":"tag-united-states","14":"tag-unitedstates","15":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115590511117473132","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/395752","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=395752"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/395752\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/247192"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=395752"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=395752"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=395752"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}