Butler researchers pitch a flexible 3% rule as a 4% withdrawal alternative

For four decades the 4% withdrawal rate has been the number a client hears when they ask what they can safely spend in retirement; Steven Dolvin and Bryan Foltice, both researchers at Butler University, argue the answer should be a range instead of a figure — a "flexible 3%" rule that pairs a fixed, inflation-adjusted baseline withdrawal with additional, performance-based withdrawals.

Foltice told Financial Planning that the financial independence, retire early movement helped push him toward the question, because its adherents tend to plan for retirements far longer than the standard case — someone who stops working at 45 and lives to 95 is funding a horizon of fifty years — and long horizons are where the 4% rule's failure rate climbs. "The failure rate that everyone really focuses on tends to go up higher as the time horizon increases," he said, and the outlet has run the argument before that fixed-rate withdrawal strategies fall short.

The trade-off is in the name. Foltice acknowledged the flexible approach will not pay as much on average as a fixed rate; what a lower baseline buys is a plan with a second act, one that cuts the failure rate and leaves money behind for a client who outlives the horizon and can restart the process and keep drawing income from what remains. He called the baseline a "safe cushion" for withdrawals.

He named the limits of his own framework in the same conversation: taxes and required minimum distributions from individual retirement accounts have to be worked into any drawdown schedule. "It would be naive to totally ignore those when you're just going to blindly execute a 'flexible three' plan," he said, adding, "This is where personal finance becomes very personal."

That caveat is what turns the paper from a rate into a routine, because the baseline is the fixed, inflation-adjusted piece that does not move when markets do, while everything above it is discretionary, making the annual review a spending negotiation rather than a compliance check — here is what the portfolio earned, here is what the household needs, here is what we are taking this year. The tax and RMD overlay sits on top, and for a client in their seventies that overlay can drive the schedule more than the rate does.

Alicia Fuller, founder and managing director of Coastal 360 Capital Advisors, starts there: "The first thing that comes into play is client behavior," she said. Her Naples, Florida firm partners with RIA Steward Partners, a platform that has appeared five times in this publication's coverage this month, and affluent clients, in her account, neither need the withdrawals nor want them; they leave the account alone until RMDs force money out.

Charles Failla, principal and founder of Sovereign Financial Group in Stamford, Connecticut, is equally unpersuaded that the benchmark deserves the weight it carries. Four percent is "a decent rule of thumb," he said, but "a very distant second-best way to do it," and his preference is to analyze each client's expected income and expenses every year rather than fix a percentage and hold it.

Set the paper beside the two practitioners and the disagreement is narrower than it looks, because Foltice's reservations — taxes, RMDs, a household read case by case — are the same variables Fuller and Failla say drive the plan. What the flexible 3% contributes is a structure for a conversation that has to happen annually anyway: a baseline low enough to survive a poor decade, and a stated mechanism for spending more when the portfolio and the client's needs permit it. Both advisors were asked about a rate and answered with a process.

That lands close to the position this publication has taken on decumulation: retirement income plans have to carry Social Security timing, health spending, survivor income floors and the question of what the client does with their time after work, and the withdrawal rate is one input among them, while the advisor who can hold the full conversation is the one who still has the relationship when the account stops growing.

What the coverage does not carry is the arithmetic, because the interview does not describe the paper's assumed portfolio, its failure rates across horizons, or the trigger that governs a performance-based withdrawal, which leaves "flexible 3%" a frame rather than a number to type into a client's plan. Foltice's own warning applies to his proposal too: a withdrawal schedule run without the tax and RMD overlay is the naive version.

For the household that steps away at 45, the choice between drawing 4% and drawing a flexible 3% is not a rounding difference — it decides whether a balance remains to be restarted later. That is the case the research was built around, and the case to test the model against before it reaches a plan.