Spending the portfolio you spent decades building
Accumulation has one rule — keep buying. Spending is genuinely harder: the order of market returns suddenly matters, taxes come due, and the habit that built your wealth (never sell) must be carefully, partially unlearned. Plan the exit years before you need it.
"Someone's sitting in the shade today because someone planted a tree a long time ago."
The 4% rule — useful, not sacred
The classic finding (Bengen 1994, and the "Trinity study" after it): in US historical data, an investor who retired with a 50–75% stock portfolio, withdrew 4% of the starting balance in year one, and then raised that amount with inflation each year, almost never ran out of money within 30 years — even retiring into the Great Depression or the 1970s. Inverted, it gives the most useful planning number in personal finance: a target portfolio of roughly 25× your desired annual spending.
| Annual spending need | 25× target (4%) | 28.5× target (3.5%) |
|---|---|---|
| $40,000 | $1,000,000 | $1,140,000 |
| ¥4,000,000 | ¥100,000,000 | ¥114,000,000 |
| ₩50,000,000 | ₩1,250,000,000 | ₩1,425,000,000 |
Honest caveats before you build a life on it:
- It is US history, not physics. The 4% result comes from the best-performing major market of the 20th century. Many planners use 3.25–3.75% for longer retirements, non-US assumptions, or today's valuations.
- It ignores taxes and fees — your withdrawal must cover both. A 0.1% index fund and a tax-sheltered wrapper effectively raise your safe rate; a 1.5% advisor lowers it.
- Rigid rules waste money in good times and strain in bad. In practice, flexible variants — skipping the inflation raise after a down year, or "guardrails" that cut spending 10% when the withdrawal rate drifts too high — materially improve survival odds.
- Retirement horizons over 30 years (early retirement, or planning at 50) need lower rates; horizons of 20 years or less can support higher ones.
Sequence-of-returns risk
Two retirees can earn the same average return over 30 years and end in completely different places. The one who hits a −40% crash in years one and two — while withdrawing — sells the most shares at the worst prices, and the portfolio may never recover even when the market does. The one who gets the crash in year 25 barely notices. The order of returns, not just the average, decides whether the money lasts. This is why the drawdown phase needs different machinery than accumulation:
1. The bucket structure
Hold 1–2 years of spending in cash and 3–7 more in bonds; the rest stays in stocks. Bad year? Spend the cash and refill it later. You never sell stocks into a crash, which is the whole game.
2. The pre-retirement glide
Shift gradually from ~80–100% stocks toward 50–70% over the 5–10 years before withdrawals begin. The riskiest window is the five years either side of retirement day — protect exactly that window, not every year after it.
3. Flexible spending
Agree with yourself in advance: after a down year, no inflation raise; if the portfolio falls 20% below plan, trim spending 10%. Small, early cuts do the work of huge, late ones.
Which account to tap first
Withdrawal order changes after-tax wealth by meaningful amounts. The common frameworks — verify against current rules with a professional before acting:
- Taxable brokerage first (long-term gains rates; lets sheltered accounts keep compounding).
- Traditional 401(k)/IRA next — mind required minimum distributions from age 73, and consider Roth conversions in low-income years before they start.
- Roth last: tax-free, no RMDs during your lifetime — the best asset to hold longest or leave to heirs.
- Taxable (特定) account first — realizing gains costs 20.315%, so realize the smallest-gain lots first.
- iDeCo arrives at 60+ as lump sum or annuity; the retirement-income deduction (退職所得控除) often makes the lump sum highly tax-efficient — do the comparison.
- NISA last: permanently tax-free with no forced withdrawals — every year it stays invested is free compounding. Selling also restores lifetime quota if you later want to rebuy.
- Taxable accounts first, using the annual ₩2.5M overseas-gains deduction each year rather than realizing decades of gains at once.
- 연금저축/IRP from age 55 as a pension: within annual limits, withdrawals are taxed at just 3.3–5.5% (연금소득세) — the payoff for decades of deferral. Large lump sums lose that treatment (기타소득세 16.5%), so annuitize.
- ISA proceeds can roll into 연금저축 at maturity for an extra tax credit even late in life.
The pre-drawdown checklist
- Know your number: annual spending × 25 (or × 28 if cautious). Check progress with the calculator's goal mode.
- Start the glide: begin shifting toward your retirement allocation — gradually, on a schedule, not in response to headlines.
- Build the cash bucket over the final 2–3 years of salary rather than by selling stocks on day one.
- Map every account's rules: RMD ages, 연금 annuitization windows, NISA quotas, pension start dates — put the dates in a calendar.
- Write the withdrawal policy — which account, in what order, what the spending cut triggers are — while it's still theoretical. The same one-page discipline that got you here (see Crashes) gets you through.