Variable percentage withdrawal (VPW) is a retirement spending method that recalculates each year’s withdrawal as a percentage of your current portfolio, using your age, your asset mix and a planned end age (often 100). The percentage rises as you get older. Because you always take a share of what’s left, the portfolio can’t run to zero before your end age. The trade-off is that your income moves with the market, so you need room in your budget to spend less after a bad year.
It was developed by members of the Bogleheads investing forum as a middle ground between the fixed 4% rule and a flat percentage. Here’s how it works, example percentages, and who it suits.
How VPW differs from the 4% rule #
There are two simple ways to draw down a portfolio, and each has a flaw:
- Constant dollar (the 4% rule). Take 4% of your starting balance in year one, then raise that dollar amount with inflation every year. Income is steady, but the plan ignores the market. A bad start can drain the portfolio, a problem called sequence of returns risk.
- Constant percentage. Take the same percentage, say 4%, of whatever the balance is each year. You can’t run out, but a 30% market drop means a 30% pay cut, and the fixed percentage leaves money unspent late in life.
VPW keeps the “percentage of what’s left” feature but raises the percentage each year as your remaining horizon shrinks. It works like a loan payment in reverse: given a balance, an expected return and a number of years, what payment would exactly use it up by the end?
How the VPW percentage is calculated #
The percentage comes from the standard payment formula, the same math behind a mortgage schedule. You need three inputs:
- Years remaining, until your planned end age (VPW commonly uses 100)
- An expected real return for your mix of stocks and bonds
- Your current balance
Each year you recompute. Fewer years remain, so the percentage rises.
Here’s what that formula produces, planning to age 100 with withdrawals at the start of each year:
| Age | At 3% expected real return | At 3.5% expected real return |
|---|---|---|
| 40 | 3.5% | 3.9% |
| 45 | 3.6% | 4.0% |
| 50 | 3.7% | 4.1% |
| 55 | 3.9% | 4.3% |
| 60 | 4.1% | 4.5% |
| 65 | 4.4% | 4.8% |
| 70 | 4.9% | 5.2% |
| 75 | 5.4% | 5.7% |
| 80 | 6.3% | 6.6% |
| 85 | 7.7% | 8.0% |
These are illustrations of the formula. The Bogleheads VPW spreadsheet sets the return from your specific stock and bond allocation, so its table will differ from this one. A more stock-heavy mix uses a higher expected return and therefore a slightly higher percentage, with bigger swings from year to year.
A worked example #
You retire at 45 with $1,500,000 and use the 3% column.
- Year 1 (age 45): 3.6% of $1,500,000 = $54,000
- Year 2 (age 46): a strong year lifts the portfolio to $1,620,000 after your withdrawal. At about 3.63%, you take about $58,700.
- Year 3 (age 47): a bear market drops it to $1,250,000. At about 3.65%, you take about $45,700.
Between years 2 and 3, spending falls by about $13,000. That’s the cost of VPW. The benefit is that you sold fewer shares at low prices, leaving more to recover.
VPW vs. the 4% rule for early retirees #
| Fixed 4% rule | VPW | |
|---|---|---|
| Income stability | High | Varies with the market |
| Risk of running out before the end age | Real over 40+ years | None, by design |
| Response to a crash | None; keeps withdrawing the same amount | Automatic spending cut |
| Response to a boom | None; surplus often goes unspent | Automatic raise |
| Effort | Set once | Recalculate once a year |
For a 30-year retirement, the fixed 4% rule has worked in almost every historical period. For 40 to 60 years, a fixed rule needs a lower starting rate to be as safe. See whether the 4% rule is safe for 40 years. VPW handles long horizons by design, as long as you can live with the swings.
How to make VPW livable #
Set a spending floor #
Know the minimum you need for essentials: housing, food, healthcare, insurance. If a bad year pushes your VPW amount below that floor, you need a plan to cover the gap:
- A cash buffer of one to two years of essentials, outside the VPW portfolio
- Part-time or freelance income for a year or two
- Trimming discretionary spending first
Our guide to how much cash to keep in early retirement covers sizing the buffer.
Consider a ceiling #
In very good years, you don’t have to spend the full amount. Some people cap spending and send the extra to the buffer, which smooths income over time.
Account for Social Security and pensions #
VPW covers the portfolio. Income from Social Security, a pension or rentals simply adds on top once it starts. Some retirees spend a bit more from the portfolio before Social Security begins, then less afterward, to even out total income.
Recalculate once a year #
Pick a date, check your balance, look up your percentage for that age, and set the year’s spending. Monthly adjustments add noise without helping.
Pros and cons of VPW #
Pros
- The portfolio can’t run out before your planned end age
- Spending responds to markets automatically, which reduces sequence risk
- In good markets you spend more while you’re young enough to enjoy it
Cons
- Income can drop sharply after a bad year
- Requires a yearly calculation
- Hard to combine with large fixed costs such as a big mortgage, because those can’t be cut when the percentage falls
Before committing, test VPW and your alternatives in a FIRE retirement simulation.
Where Retire Goals fits #
VPW needs a portfolio to draw from, and getting there is the job Retire Goals is built for. Its FIRE Number calculator divides your spending by any withdrawal rate. At the 3.6% starting rate from the example, $54,000 of spending needs $1.5 million. A FIRE goal then projects when you’ll get there, with the odds attached. Its Will My Money Last calculator uses the constant-dollar approach, raising withdrawals with inflation each year, so treat it as a check on the fixed-spending version of your plan. VPW itself is a spreadsheet calculation.
Frequently asked questions #
Is VPW good for early retirement? #
It’s well suited to long horizons, because the percentage starts low for younger retirees (roughly 3.5% to 4% in the illustrations above) and only rises with age. The requirement is a budget flexible enough to absorb lower spending in bad years.
How do I handle years when VPW forces a big spending cut? #
Separate needs from wants. Cut travel and large discretionary purchases first, and cover essentials from a cash buffer or temporary income if the VPW amount falls below your floor. Refill the buffer in good years.
Can I combine VPW with a cash cushion? #
Yes, and many people do. Keep one to two years of essential spending in cash outside the VPW calculation, draw on it after bad years, and top it up after good ones. It smooths the income swings.
Do I need a special calculator for VPW? #
The Bogleheads community maintains a free VPW spreadsheet that sets the percentage from your age and allocation. You can also use any spreadsheet’s payment function, entering your years to age 100, an expected real return and your balance.