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Bogleheads Variable Spending

Withdraw a fixed percentage of your current portfolio each year, but limit year-to-year changes to a band (typically plus or minus 10%) to keep income reasonably stable.

How It Works​

The Bogleheads Variable Spending method comes from the practical wisdom of the Bogleheads investing community, which emphasizes simplicity and evidence-based decision-making. It starts with a straightforward idea: withdraw a fixed percentage (commonly 4%) of whatever your portfolio is worth right now. This is inherently sustainable because you can never withdraw more than a percentage of what you have.

The problem with a pure percentage-of-portfolio approach is that spending can be wildly volatile. A 20% market drop means a 20% income cut the next year. To address this, the Bogleheads method adds change bands that limit how much your withdrawal can increase or decrease from one year to the next. If the formula says you should withdraw $50,000 this year but that would be more than 10% above last year's withdrawal, you cap it at last year's amount plus 10%.

The result is a method that broadly tracks your portfolio's health — spending rises in good markets and falls in bad ones — but smooths out the year-to-year changes so you are not constantly adjusting your lifestyle. The bands act like shock absorbers on a car: the road is bumpy, but the ride is tolerable.

The Formula​

Year 1:

withdrawal = currentPortfolio × spendingRate

Year 2+:

target = currentPortfolio × spendingRate
maxWithdrawal = previousWithdrawal × (1 + bandPercent)
minWithdrawal = previousWithdrawal × (1 - bandPercent)

if target > maxWithdrawal:
    withdrawal = maxWithdrawal
elif target < minWithdrawal:
    withdrawal = minWithdrawal
else:
    withdrawal = target

Key parameters:

  • Spending rate: 4% (i.e., portfolio divided by 25)
  • Band percent: 10% (limits year-over-year change)

Pros & Cons​

Advantages:

  • Community-tested approach with broad adoption among DIY retirees
  • Smooths spending volatility without eliminating market responsiveness
  • Simple percentage-of-portfolio base is inherently sustainable
  • Easy to understand and implement with minimal calculation

Limitations:

  • May lag behind large market moves due to the banding constraint
  • The band width is somewhat arbitrary and may need personal calibration
  • Still allows spending cuts (up to the band limit each year, compounding over time)
  • In a prolonged bear market, cumulative band-limited cuts can still be substantial

Example​

Starting portfolio: $1,000,000 | Spending rate: 4% | Band: 10%

YearPortfolioTarget (4%)Min (−10%)Max (+10%)Actual Withdrawal
1$1,000,000$40,000——$40,000
2$850,000$34,000$36,000$44,000$36,000 (min band)
3$800,000$32,000$32,400$39,600$32,400 (min band)
4$900,000$36,000$29,160$35,640$35,640 (max band)
5$1,050,000$42,000$32,076$39,204$39,204 (max band)

In Year 2, a straight 4% withdrawal would drop from $40,000 to $34,000 — a 15% cut. The band limits the cut to 10%, so you withdraw $36,000 instead. In Year 4, the portfolio recovers and the target jumps to $36,000, but the band only allows a 10% increase from the prior year's $32,400, capping it at $35,640. The bands prevent both sharp drops and sharp spikes.

When to Use This Method​

The Bogleheads Variable Spending method works best for retirees who:

  • Want a simple, community-vetted approach to retirement income
  • Prefer spending that tracks the portfolio but without extreme swings
  • Are comfortable with gradual spending adjustments in either direction
  • Value simplicity and transparency in their withdrawal rules
  • Want a method that is inherently sustainable (you cannot overspend your portfolio)
Try It Yourself

Compare Bogleheads Variable against other strategies using your own numbers in the Scenario Builder.

References​