But new research from Amy Arnott, portfolio strategist at Morningstar, has added weight to an earlier Morningstar analysis suggesting that many retirees may be leaving money on the table that could have improved their lives if spent.

In fact, during a June webcast sponsored by Kitces. com, Arnott said that retirees willing to adjust spending as markets fluctuate can often withdraw significantly more than traditional retirement-income models suggest.

“ The good news is you don’ t need to be locked into a rigid approach like the traditional 4 % rule,” Arnott told advisors.“ By taking a more flexible approach, you can get pretty significantly higher withdrawal rates in some cases.”

Earlier this year, Morningstar set a safe withdrawal rate for people retiring in 2026 at 3.9 % annually under a fixed-spending approach. But research conducted by Arnott focused on a number of flexible spending strategies that she said supported much higher withdrawal rates.

The highest-ranked approaches— a constant percentage method and an endowment-style spending strategy modeled after university endowments— supported starting withdrawal rates of 5.7 %. For a retiree with a $ 1 million portfolio, that translates into an initial withdrawal of roughly $ 57,000 per year, much higher than the $ 39,000 allowed under Morningstar’ s current 3.9 % baseline.

Arnott’ s findings also challenged one of the core assumptions behind the traditional 4 % rule: that retirees spend the same inflation-adjusted amount every year throughout retirement.“ Human beings don’ t actually spend that way,” she said.

Instead, research cited by Morningstar found inflation-adjusted household spending typically declines with age. Starting at age 65, people’ s spending falls 19 % over the next 10 years until they’ re age 75, falls 34 % by the time they are 85, and falls 52 % by the time they are 95.

Retirees often spend more in the socalled“ go-go” years of retirement, when they are healthy and active, before spending gradually declines later in life.

Arnott’ s report examined eight alternative spending approaches, including required minimum distribution-based withdrawals, constant-percentage spending and endowment-style methods. Among the most compelling findings was the performance of an approach that regularly adjusts spending according to the probability that a retirement plan will remain successful over time. She calls this the“ probability-based guardrails” approach.

Morningstar found the strategy generated the highest lifetime spending of any method tested while maintaining relatively modest cash-flow volatility. It generated $ 1.55 million in spending over 30 years, in contrast to a traditional 3.9 % traditional withdrawal, which generated about $ 1.18 million. The probability method added roughly $ 370,000 more in lifetime spending, or 31 % more over an investor’ s retirement.

Arnott also said the approach most closely resembles how advisors actually manage retirement income plans.“ It’ s probably the most similar to how a financial advisor would actually handle withdrawals for clients in practice,” she said. Advisors typically revisit plans regularly and make adjustments as conditions change rather than relying on a static formula.

The research also found that balanced Continued on page 10

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