In a 2013 article, a Vanguard research team headed by Colleen Jaconetti developed an alternative form of the floor-and-ceiling spending rule that relies on percentages rather than hard dollar amounts.

With their framework, the ceiling refers to a maximum percentage increase in spending each year, while the floor refers to a maximum percentage drop in spending for each year. The baseline case they describe is a 5% ceiling and a 2.5% floor, illustrated in Exhibit 1.

To determine spending, they say to first apply a fixed-percentage spending rule to the remaining account balance. For the baseline, if the spending amount would be more than 5% greater than that of the previous year, then the new spending amount is capped at 5% growth.

Click here to download Dr. Pfau’s fact sheet “The Relationship Between Spending and Aging.”

To determine spending, they say to first apply a fixed-percentage spending rule to the remaining account balance. For the baseline, if the spending amount would be more than 5% greater than that of the previous year, then the new spending amount is capped at 5% growth.

Meanwhile, if the spending amount would drop by more than 2.5%, then spending for the year is limited to a 2.5% decrease. Each year the rule is applied again to the previous year’s spending level.

The narrower the range between the floor and ceiling, the more this spending rule acts as a rule that increases spending at a fixed rate. As the range increases, the rule behaves more like a fixed percentage rule, because you become less likely to reach the binding constraints on either end.

Despite the lack of a hard dollar floor, this method is also susceptible to portfolio depletion. Spending may not always drop quickly enough to preserve the portfolio.

Exhibit 1 Time Path of Real Spending and Wealth

Vanguard’s Percentage Floor-and-Ceiling Rule

For 4% Initial Spending Rate, 50/50 Asset Allocation, Rolling 30-Year Retirements

Using SBBI Data, 1926-2015, S&P 500 and Intermediate-Term Government Bonds

Vanguard’s Percentage Floor-and-Ceiling Approach

vanguard floor and ceiling

1 Comment

  1. […] post Floor And Ceiling Retirement Spending, With A Twist appeared first on Retirement […]



Retirement Researcher is a SEC registered investment adviser. The content of this publication reflects the views of Retirement Researcher (RR) and sources deemed by RR to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.

The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. RR only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.