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The basics
The rule first calculates a budget as a fixed percentage of the portfolio. It then compares that amount with the previous year’s portfolio-funded spending.
If the new budget would be less than 95% of the previous amount, the rule uses the 95% floor. This spreads a large spending reduction over time, but can require larger withdrawals while markets remain low.
Illustrative numbers
A 4% share meeting a third off the portfolio
Cards’ bill before scaling$60,000 a year
The year’s other money, net$20,000
Year 1 — portfolio $1,000,000budget $40,000, spends $60,000
Year 2 — portfolio $660,000share says $26,400, floor holds $38,000
Year 3 — portfolio $620,000share says $24,800, floor holds $36,100
Year 4 — portfolio $600,000share says $24,000, floor holds $34,295
The cards are scaled to 0.967, then 0.935, then 0.905, so the household spends $58,000, then $56,100, then $54,295. What the portfolio is asked for falls exactly five percent a year — $40,000 to $38,000 to $36,100 to $34,295 — where the raw share would have cut it 34% in a single step, to $26,400, and held spending to $46,400. Neither the 60% floor nor the 150% ceiling bit here: what kept spending up was Clyatt’s own handbrake, and the extra $11,600 in year two came out of a portfolio that had just fallen by a third.
Calculation transparency
How it works in MoneyWhatIf
- 01
The rule lives only in retired years the strategy’s window covers, and only in a funded run — the only run with a portfolio statement to read. A working year, or a year outside the window, passes through at a scale of one and keeps the rule’s memory, because a sabbatical is not a verdict on the portfolio.
- 02
“Portfolio” means what the accounts closed the previous year holding, each balance floored at zero before they are added: the same statement a required minimum distribution is worked out from, and the base the published rule was written against.
- 03
The first retired year has no memory, so its budget is simply the chosen share of that portfolio. Every year after it, the budget is the larger of the share and 95% of what the previous year carried, which is what makes the slope.
- 04
The budget is the portfolio’s part of the bill, not the whole bill.
MoneyWhatIf measures the year’s other money first — in, every income stream the year pays and the rent, which in a retired year usually means Social Security and a pension rather than a wage; out, the pre-tax and after-tax contributions, a job’s own pension deduction, income and payroll tax, the roof, the scheduled debt payments, and any spending card the rule may not bend — and then scales the cards until the portfolio is being asked for the budget on top of that.
On a plan whose income tax settles the following April, the income tax in that measure is only what the paycheck withheld, and last April’s settlement is netted with it — out when the year owed, back in when it was a refund.
- 05
The scale is clamped inside the rails set on the same panel: by default never below 60% of what the chosen cards say and never above 150% of it. What the rule carries into next year is the draw that clamped scale actually implies, not the budget it wanted — a floor read off a budget the ceiling never let through would pin spending to the ceiling for years after a boom and bust.
- 06
A retired year with nothing on the chosen cards is skipped entirely. There is nothing to scale, and reading a verdict into a year that never asked the question would corrupt the memory the next real year depends on.
- 07
The scale is applied to the card amounts before anything downstream reads them, so tax, the cash buffer, the withdrawal order and Medicare’s surcharge two years later all move with it. Cards left unticked in the scope become bills the rule budgets around rather than budgets it may cut, and a child’s compiled years always count in full.
Keep in mind
Model limits
The projection settles one year at a time, so the 95% floor steps once a year; a household reading a January statement and trimming in March is not something the annual model can represent.
The floor stands under what the portfolio is asked for, not under what the household spends. The two move together only while the year’s other money holds steady: in the example above, a year that lost the $20,000 of other income would still ask the portfolio for its $40,000 and would still cut the cards from $60,000 to $40,000.
Clyatt published the rule as a fixed share of the portfolio with a 95% floor on the previous year’s withdrawal, set inside a semi-retirement that also earns part-time income. MoneyWhatIf lets the share be any figure between 0.5% and 20%, and applies the floor to the portfolio’s part of the bill rather than to a whole household budget it does not otherwise hold.
Medicare and marketplace premiums are priced after the rule has read the year and stay outside its measure entirely, so the rule neither trims them nor counts them against the portfolio’s share.
The model cannot know whether a real household would hold to a five-percent trim, or would rather cut harder and sooner; the rule is a policy the forecast follows, not a prediction of behavior.
This explanation documents the planning model. It is educational, not individualized tax, legal, Medicare, or investment advice.
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Related financial terms
Plain-English definitions, with 2026 figures and worked examples, from the financial terms glossary.