John Montgomery Proposes 2.8% Retirement Withdrawal Strategy

Investment strategist John Montgomery has proposed a conservative retirement spending model that deviates from the industry-standard 4% rule. As the founder and CEO of Bridgeway Capital Management, Montgomery advocates for a withdrawal rate of 2.8% of a portfolio's value, measured from its last major peak. To support this, he recommends an aggressive asset allocation consisting of 90% stocks and 10% bonds, arguing that this combination prevents spending cuts during market sell-offs and allows portfolios to grow over time.

This approach contrasts with the views of Bill Bengen, the creator of the 4% rule. Bengen recently suggested that retirees could safely spend 4.7% or more of their portfolios. Bengen argues that the fear of depleting funds often leads retirees to spend significantly less than they could, which he describes as a shame after years of sacrifice.

Montgomery maintains that a more cautious approach is necessary due to the uncertainty of individual lifespans and the desire to leave legacies for family or charitable causes. While Bengen focuses on maximizing the utility of savings during a retiree's lifetime, Montgomery emphasizes the security of a lower withdrawal rate to ensure long-term sustainability.