Safe Withdrawal Rates for High‑Cost Cities: Rethink 4%

What pros wish you knew about the “4% rule” in pricey cities

Look, the classic 4% rule was built on a perfectly average America that, let’s be honest, doesn’t look like Manhattan, San Francisco, LA, Boston, or Seattle. The original research (Bengen, 1994; then the Trinity Study, 1998) used broad U.S. historical returns and nationwide inflation. It never assumed $4,000-plus rents, Bay Area property tax bills that make your eyes water, or Medicare premiums plus city-level surcharges nibbling at your cash flow. So, the 4% rule is a decent national benchmark. It’s just not a plan if your monthly “fixed” costs already eat half your budget before you even buy groceries.

Here’s the thing: even mainstream updates say the guardrails moved. Morningstar’s 2023 research pegged a 30-year starting withdrawal rate closer to about 3.8% for a 60/40 portfolio. Yes, bond yields are higher than they were in 2020-2021, which helps. But inflation volatility and sequence-of-returns risk still do what they do, especially in the first 5-10 years of retirement. And when you overlay high-cost-city math, that safe number probably nudges even lower because your flexibility shrinks. Fixed expenses are heavier, taxes can be steeper, and you can’t just “move to a cheaper suburb” if your life, kids, doctors, community, is anchored where you are.

As I mentioned earlier, we’re in 2025 and the backdrop isn’t exactly generous. Mortgage rates are still elevated vs. the pandemic era (remember sub-3%? yeah, me too), and post-2021 rent spikes only partially cooled in 2024-2025. Translation: your margin for error is thinner. If your housing line item is stubborn, and in these cities it usually is, then your portfolio has to carry more of the load in down markets, precisely when you should be trimming withdrawals, not locking them in.

Anyway, here’s what this section will set up for you, practical, city-aware expectations so you don’t accidently overspend in year one and then spend year ten regretting it:

• Why 4% was never about Manhattan or the Marina. We’ll connect the dots from Bengen (1994) and Trinity (1998) to your actual rent, taxes, and healthcare premiums.
• How a 3.8% starting point (Morningstar, 2023) translates in pricey zip codes. Higher bond yields help, but inflation and sequence risk still matter, a lot.
• Fixed costs vs. flexibility. Big non-negotiables, housing, property taxes, Medicare IRMAA, local taxes, mean you probably need a tighter initial rate and a plan to ratchet withdrawals.
• 2025 reality check. Elevated mortgage rates and only partially cooled rents reduce the cushion. We’ll talk buffers, guardrails, and when to hold off on cost-of-living raises.

Speaking of which, this isn’t scare tactics. It’s just arithmetic. A static national rule is a rough starting point; your city-specific plan needs to account for higher fixed expenses, tax drag, and the annoying timing of bear markets. If you live where the bagel costs $7 and parking costs your dignity, you probably start closer to the low-3s, then earn raises with market performance. That’s how you keep optionality intact and still sleep at night.

Bottom line: The 4% rule got you to the neighborhood. In high-cost cities, you need the right address, the right buffer, and a willingness to adjust. You’ll recieve better outcomes by treating 4% as a ceiling, not an entitlement.

Reality check: cost of living and taxes change your number

Here’s the thing: in high-cost cities, your spending is front-loaded with stuff you can’t easily dial down. Map it explicitly. Split your budget into two buckets: (1) essentials you must pay regardless of markets, and (2) discretionary you can pause. In places like NYC, SF Bay Area, LA, Boston, DC, and North Jersey, essentials, housing, healthcare, insurance, utilities, transport, taxes, often eat 65-80% of the annual budget. That’s not a scare line; that’s what we actually see when we tear down client cash flows. And when essentials dominate, your starting withdrawal rate needs to be lower, because flexibility is your shock absorber.

Taxes take their bite before you see a dime. State and local taxes can materially lower what you net from each withdrawal. The $10,000 SALT deduction cap is still in place for 2025 under current law. So, a retiree in California or New York (add NYC’s city tax on top) or New Jersey doesn’t get to deduct big property taxes plus state income taxes beyond that cap. Translation: your federal taxable income is higher than you’d like, which pushes up your effective rate. Quick sketch: say you need $140,000 gross to cover life in Manhattan. Between NY State and NYC, many retirees will face a combined state/city marginal in the mid-single digits to low-teens depending on income level, and because SALT is capped, your federal bill doesn’t get the usual relief. Not fun, but it’s the math.

Healthcare varies by ZIP code, and it’s not trivial. Before Medicare, ACA marketplace premiums and out-of-pocket costs swing a lot by region. The Inflation Reduction Act extended the enhanced ACA subsidies through 2025, which matters this year, especially if you can manage your adjusted gross income. According to KFF data for 2024, benchmark Silver premiums for a 40-year-old varied by more than 2x across states before subsidies, which gives you a sense of the spread you might see in retirement if one spouse is under 65. If you’re in a high-premium metro and don’t control income, you might be staring at $10,000-$20,000 per year for premiums and OOP combined for two people. Manageable? Sure. But it moves your safe withdrawal rate down a notch.

Big fixed costs reduce flexibility. Rents that adjust annually, HOA dues with special assessments, and property taxes with built-in escalators all behave like debt. They don’t care about bear markets. New Jersey’s effective property tax rates are among the highest in the country (around 2% on average in recent surveys), while California’s Prop 13 keeps nominal rates lower but still allows annual assessments to ratchet. If 70% of your spend is fixed, your ability to cut in a drawdown is limited; that’s the lever that usually saves plans. So, you preempt it by starting lower.

What does that mean for the withdrawal rate? For many city households, a sensible starting range is ~3.0-3.8%, not 4%. Earlier this year, rents cooled a bit from 2022-2023 peaks but stayed sticky in the big coastal metros, and mortgage rates are still elevated in 2025, which keeps move-versus-rent decisions tight. Add the SALT cap through 2025 and higher regional healthcare costs, and the arithmetic points to the low-3s if your fixed costs are heavy. If essentials are, say, 75% of your $180,000 budget ($135k fixed, $45k flexible), a 3.3% withdrawal on $5.5 million throws off ~$181k pre-tax; after federal plus state/city taxes and healthcare, the cushion isn’t huge. You can raise later if markets cooperate, but starting higher puts you on thin ice.

Anyway, make the map. List your essentials line by line: rent or mortgage+HOA, property tax, utilities, insurance (home, umbrella, auto), health premiums and expected OOP, transit/car, baseline groceries, and the tax estimates that actually match your state and city. Then layer discretionary: travel, dining out, gifts, hobbies. The thing is, when that essentials number is big, your “safe” rate probably isn’t 4%, it’s whatever keeps those fixed checks covered even if markets go sideways for a couple years.

Bottom line: In expensive metros, taxes and fixed costs shrink your net. With the $10k SALT cap still here in 2025 and ACA subsidies still in play, improve your income and keep essentials under control. Start around 3.0-3.8%, then earn raises. You’ll sleep better… but that’s just my take on it.

Housing is the boss: rent, own, or right-size?

Look, if your budget lives in a high-cost city, housing isn’t a line item, it’s the boss. Everything else negotiates around it. The choice to stay put, rent, downsize, or pull some partial geo-arbitrage directly moves your sustainable withdrawal rate (SWR). Earlier I said 3.0-3.8% is a sensible starting lane in pricey metros. Housing is the lever that can nudge you toward the high end, or yank you lower.

If you own: great, but model the creep. Fixed-rate mortgages are your friend in 2025, especially if you refinanced sub-4% back in 2020-2021. The non-mortgage stuff is the problem child:

• Property taxes: ATTOM’s report on 2023 single-family homes showed total property taxes of about $339B, with an average bill near $4,890 and an effective rate around 0.87%. In many high-cost counties (think NJ, IL, TX metros), annual hikes of 3-6% aren’t unusual. Build that growth in your model.
• Insurance: carrier pullbacks and re-rating haven’t calmed down. In coastal and wildfire-prone states, I’ve seen clients get 15-30% year-over-year jumps the last couple renewal cycles (2023-2025). Even if yours was flat last year, don’t assume it stays flat. Honestly, I’d budget mid-single digit growth at a minimum.
• Maintenance: use 1-2% of current home value per year as a rule of thumb. A $900k townhouse? That’s $9-18k/yr on average over time, some years little, some years the roof eats your wallet.
• HOA/condo risk: dues go up, and special assessments happen. If you’ve got an older building (post-inspection era, reserve studies tightening), add a placeholder bucket. I know that sounds hand-wavy, but a $10-25k one-off every few years doesn’t shock me anymore.

What does that do to SWR? If all-in housing (tax+insurance+HOA+maintenance+mortgage) runs 40-50% of your spend, your sequence risk rises, so your SWR probably sits nearer 3.0-3.4% unless you’ve got hefty guaranteed income. If you can trim that share to the low 30s, you might be comfortable near 3.5-3.8%, case by case.

If you rent: rent volatility and renewal shocks are the biggie. 2024 national asking rents were roughly flat to slightly up year-over-year in many datasets, but renewal increases were still higher, RealPage data in 2024 often showed renewal bumps around the mid-single digits when new-lease rents were cooler. In 2025, I’m seeing 1-3% headline increases in a lot of large markets, with pockets of 5%+ on renewals. Translation: don’t anchor to last year’s promo rate.

• Build a housing-shock reserve: set aside 6-12 months of rent in cash or very short-term Treasuries. Keep it outside the invested portfolio. That buffer lets you absorb a renewal spike or a forced move without selling stocks at a bad time. It also buys search time, ask me about the summer I had three friends compete for the same 2-bed in Queens…
• Stress-test: model a 7-10% one-time jump plus 3-4% annual increases. If your plan only works with 0-2% rent growth, you’re on thin ice.

Right-sizing and geo-arbitrage: downsizing within the metro (e.g., losing a bedroom, moving one transit zone out) can cut gross housing by 15-25% without blowing up your social life. Going across state lines? The tax wedge matters. Changing domicile from a high-tax state to a no- or low-tax state can add roughly 0.3-0.7 percentage points to withdrawal capacity, depending on your income mix (ordinary vs long-term gains), property taxes, and healthcare subsidies. I know, “basis points” show up here, sorry, jargon. I just mean: if you needed 3.2% before, a clean move might make 3.5-3.9% feel okay, assuming expenses actually drop.

Pay off the mortgage or invest? In 2025, with 30-year fixed rates still around the high-6s (Freddie Mac weekly averages were sitting near ~6.7% over the summer), the math isn’t as one-sided as it was in 2021. Compare your after-tax portfolio return assumption against the guaranteed interest savings from prepaying. If your fixed rate is 2.9%, investing probably wins on expectation. At 6.5-7.0%, the hurdle is higher. A quick framework:

• If your expected after-tax annual return is 4.5-5.5% and your mortgage is 6.75%, prepayments can be attractive, especially for peace-of-mind cash flow.
• If you itemize and actually deduct mortgage interest (SALT cap still $10k in 2025 limits many), adjust for the effective after-tax cost. Many households don’t get much benefit here.
• Don’t starve liquidity. Keep 12-24 months of essential spending in cash equivalents before you send big checks to the bank.

Here’s the thing: housing choices change the whole risk picture. A smaller place or a tax-friendlier ZIP can shave thousands off fixed costs, which pushes your SWR higher without needing heroic returns. I get more excited about that than, you know, squeezing 30 bps out of a factor ETF. Actually, let me rephrase that, I like factor ETFs, but dropping a $1,200/mo expense is a cleaner win. So, map the scenarios: stay, rent, downsize, or move. Price each one, include the sneaky stuff (insurance, assessments, rent jumps), and see which version gives you the breathing room you want. That’s the boss move.

Static rules are out; guardrails and inflation-aware strategies are in

Look, markets move, prices move, your life moves. A fixed 4% forever sounds tidy, but in a high-cost city with grocery and insurance bills that won’t quit, rigidity is expensive. After the CPI spike that peaked at 9.1% year-over-year in June 2022 (BLS data), many retirees realized that auto-inflating their withdrawal every single year can lock in a too-high spending base right after a shock. Social Security baked in an 8.7% COLA for 2023, then 3.2% for 2024 and again 3.2% for 2025, helpful, but it also shows how big step-ups can stick. So, we use systems that breathe with markets and inflation.

• Guardrails (Guyton-Klinger, 2006): You start at a reasonable rate, say 4%, then only adjust income if the withdrawal rate drifts outside set bands. A common setup is ±20% bands around the initial rate (so 3.2%-4.8%), with caps on any single-year raise or cut (often ±10%). In practice: if a down market pushes you outside the lower band, you trim; if gains lift you above the upper band, you give yourself a raise. There’s also an inflation “skip” rule, after a negative year, pause the COLA. Honestly, I wasn’t sure about this either the first time I ran it, but the math keeps you from overreacting and from quietly overspending.
• Floor-and-upside: Cover essentials (housing, food, utilities, Medicare premiums) with secure cash flows: Social Security, pensions, a TIPS ladder, or a SPIA. With 10-year TIPS real yields around ~2% for much of 2024-2025, building a 7-12 year ladder for core expenses has been more attractive than it was in the 2010s. Then let the equity-heavy portfolio fund the discretionary bucket (travel, upgrades, the grandkids’ stuff). If markets wobble, you delay the safari, not the electric bill.
• CAPE/valuation-aware starts: When the Shiller CAPE is lofty (it spent much of 2024-2025 above 30), nudge the initial rate down a bit; when markets are cheaper, you can start slightly higher. Use it as a nudge, not gospel. For example, a 4.0% target might become 3.6% when valuations are rich, with a plan to step up later if returns cooperate. I was going to show three different CAPE regimes, but the point is, don’t ignore the sticker price of risk assets.
• Inflation adjustments with judgment: After big spikes, consider partial COLAs (e.g., 50-70% of CPI) or temporary pauses in bad portfolio years to avoid ratcheting spending permanently. That doesn’t mean eat ramen; it means don’t enshrine peak prices into your baseline the exact year stocks are down.
• Plan A/B/C, in writing: Pre-commit trims if your portfolio falls: at −10%, pause raises; at −20%, cut 5-10% from discretionary; at −30%, defer big trips and cap gifting. Write it now, not during a panic, future-you will thank present-you. I keep a one-page “if-this-then-that” for clients; it’s not fancy, but it works.

Anyway, the theme is simple: build a stable floor, let the rest flex with bands, be valuation-aware at the start, and treat inflation like a dimmer switch, not an on/off button. Cash yields stayed relatively attractive into early 2025, TIPS real yields improved versus the 2010s, and equities still swing; use each for what it does best. This actually reminds me of a client who wanted to raise spending after a hot COLA year… we compromised with a half-COLA and a travel delay; two years later their funded ratio looked better, and they didn’t feel deprived, but that’s just my take on it.

Taxes, healthcare, and sequence risk: the trio that trips people up

So, these are the three swing factors I see trip up city retirees over and over: the order of returns, the order you pull from accounts, and the not-so-obvious tax wedges in healthcare. Each one on its own is manageable; together, they can chew through a safe withdrawal rate if you don’t set some guardrails.

1) Sequence risk: don’t let a bad first inning decide the game
Keep 2-3 years of essential expenses in cash and short-duration bonds. Essential means the base you can’t skip: rent/mortgage, food, utilities, insurance, basic transit, property tax. If your annual essential nut is $90k (very normal for NYC/SF retirees, sadly), that’s $180k-$270k in a buffer. Refill it after good years so you’re not forced to sell stocks after bad ones. The point is to avoid locking in losses, ask anyone who retired in 2008 when the S&P 500 fell about −37%. Same story in the early 2000s; three down years in a row is where the math gets nasty.

My simple rule: if global equities finish the calendar year positive and the buffer is below 24 months, top it back up from the taxable account first. If markets are down, spend the buffer, don’t “get cute.”

Cash yields have come off their 2023 peaks but, you know, they’re still decent relative to the 2010s. Short Treasuries and money markets are fine here; keep duration short so rate cuts don’t sting too much, but don’t overthink it.

2) Tax location & withdrawal order: taxable → traditional → Roth (usually)
Baseline: spend from taxable first (harvest losses in bad years; harvest gains in good years up to the 0% bracket), then tap traditional IRAs/401(k)s, and save Roth for last. But, and this is important, brackets and Medicare IRMAA can flip the script in certain years. For reference, the 0% long-term capital gains bracket in 2024 went up to $47,025 of taxable income for single filers and $94,050 for married filing jointly (IRS 2024 tables). That’s a lot of tax-free gain harvesting if you have basis to play with.

Roth conversions in low-income years before required minimum distributions kick in at age 73 (SECURE 2.0, effective 2023) can widen your net-of-tax safe rate later. Look, the window between retirement and RMDs is gold, fill lower brackets intentionally. Just watch the collateral damage: IRMAA and ACA.

3) Healthcare cliffs: IRMAA and ACA aren’t cliffs so much as trap doors
Medicare Part B/D IRMAA surcharges are like stealth tax brackets. The first IRMAA step last year (2024) started at $103,000 MAGI (single) and $206,000 (MFJ), based on income from two years prior (CMS publishes these annually). Cross a threshold by $1 and you pay the full year’s higher premium, no partial credit. So sequence your withdrawals and capital gains to stay just under a line when it’s efficient. For pre‑65 retirees on the ACA, the Inflation Reduction Act kept the premium cap at 8.5% of household income through 2025. That removed the old 400% FPL “cliff,” but there are still sharp edges around CSR tiers and Medicaid thresholds. Bottom line: project MAGI before you trade or convert.

Practical playbook, how to blunt the trio

• Build the buffer now: 24-36 months of essentials in cash/short bonds; refill it after positive equity years. If markets are flat-to-down, spend the buffer and pause portfolio sales. Simple, boring, effective.
• Taxable first, but improve: Harvest losses in down years to bank future flexibility; in up years, realize gains up to the 0% bracket. Then draw from traditional accounts to fill your current bracket; save Roth for last unless IRMAA or a bracket jump argues otherwise.
• Plan conversions intentionally: Do Roth conversions in the “gap years” before 73, filling 12%/22% brackets when available. Model the all‑in effect with IRMAA, state taxes, and Social Security taxation. I know, it’s a lot, but it matters.
• Use QCDs after 70½: Qualified charitable distributions from IRAs can satisfy RMDs without raising AGI. Handy if you don’t itemize in high-tax states and still want to give.
• Bracket & threshold calendar: Keep a one-page sheet with current-year brackets, IRMAA tiers, ACA targets, and your running MAGI. Update quarterly. It’s not fancy; it works.

Look, the thing is, if you pair a real cash buffer with smart tax-location and you respect the healthcare thresholds, you raise the odds your safe rate in a high-cost city actually feels safe. It’s a bit of work, and occassionally annoying, but that’s just my take on it..

Putting numbers to it: a practical playbook for 2025

1. Map the next 12 months (and the next 10 years): Build a one-page cash budget for the next year, then a 10-year spending map that splits essentials (housing, food, utilities, baseline healthcare, taxes, insurance, transport) from discretionary (travel, dining, upgrades, gifts). Stress-test the big rocks: assume housing costs run +10-15% for 2-3 years (shelter CPI ran hot last year and hasn’t fully cooled in many cities), and healthcare +8-10% for 2-3 years. For color, Medicare uses a two-year MAGI lookback for IRMAA, and healthcare premiums have been rising faster than headline CPI off and on for a decade. As I mentioned earlier, essentially, exaggerate the expensive stuff and see if you still sleep at night.
2. Set your city-adjusted starting rate: Start at a 3.0-3.8% withdrawal rate depending on your fixed-cost share (closer to 3.0% if essentials are >65% of spending or you rent in a high-cost city; up to 3.8% if essentials are under ~50% and you have flexibility). Then apply guardrails: cap annual raises/cuts at ±10% of last year’s dollar withdrawal unless markets are up/down more than ~15% and your funded ratio drifts. If you’re nerdy, tie the raise to last year’s portfolio return minus inflation, but keep the ±10% cap. Simple beats perfect.
3. Secure the floor: Plan Social Security timing, higher earners often wait to 70 because delayed retirement credits add 8% per year after full retirement age until age 70 (SSA rule). Lock in 5-10 years of essential spending with a TIPS ladder that roughly matches those years; 5-10 year TIPS real yields were around ~2% earlier this year (Treasury market data in 2025), which is actually decent for a real floor. Consider a small SPIA at 70-75 to hedge longevity; keep it modest (maybe 10-20% of essentials) so you maintain flexibility.
4. Stage your cash: Keep 12 months of essential outflows in cash/high-yield savings, then the next 1-3 years in short Treasuries or a T‑bill ladder. As of Q3 2025, many high-yield accounts are still around ~4-5% APY, but that can drift if the Fed eases, so, you know, don’t anchor.
5. improve taxes without making it a second job:
   • Bracket management: Fill 12%/22% federal brackets with planned income; keep an eye on state brackets and phaseouts.
   • Roth conversions: Use the “gap years” before RMD age 73 to convert to the top of target brackets. Model the all-in effect including IRMAA tiers (two-year lookback) and state taxes.
   • Capital gains harvesting: In low-income years, harvest gains up to the 0%/15% thresholds without tripping IRMAA or ACA cliffs. The enhanced ACA premium credits are extended through 2025, so MAGI targeting still matters.
   • SALT-aware giving: If you itemize, bunch gifts; if not, use a donor-advised fund in high-income years. After 70½, QCDs from IRAs can satisfy RMDs without raising AGI, still one of the cleanest moves.
6. Rebalance and reset guardrails each fall: Every October, reprice rent/HOA/property taxes, update healthcare premiums, and check IRMAA/ACA thresholds for the coming year. Rebalance back to target bands. Then rewrite your guardrails in plain English. Actually, let me rephrase that: write the rules so future-you will follow them.

Plain-English rules: “We withdraw 3.4% of Jan 1 balance, raise/cut by at most 10% each year. If portfolio falls 20% peak-to-trough, we pause discretionary travel for 12 months. Essentials for 7 years are covered by cash/TIPS. Convert Roth up to the 22% bracket unless it bumps IRMAA. Review in October.”

Look, markets are still offering real yield in TIPS and reasonable cash rates as we head through Q3 2025, which helps. The thing is, if you get the order right, budget, rate, floor, taxes, then the annual fall reset, you don’t need heroics. It’s a bit mechanical, occassionally annoying, and sometimes you’ll feel like you’re repeating yourself… but that’s just my take on it.

Okay, so what’s the move from here?

In expensive metros, you need a plan that bends without breaking. The realistic 2025 baseline is a flexible 3.0-3.8% starting withdrawal rate, paired with guardrails, a 2-3 year cash buffer, and tight tax planning. That range isn’t me being cute; it reflects the math we’re seeing with today’s yields and high fixed costs. As of August 2025, 10-year TIPS real yields hover around ~2.0-2.2% (Treasury data), and top online savings are still paying roughly 4.5-5.0% this year. Those tailwinds help, but in high-cost cities they mostly offset housing, healthcare, and taxes, not all the extras.

Here’s the thing: housing and taxes decide your safe rate more than investment heroics. Solve those first, then fine-tune portfolios. Property taxes alone can swing the whole equation, New Jersey’s median effective rate was about 2.23% in 2023 (Tax Foundation), while California’s was closer to ~0.75% that year. That’s a multi-thousand-dollar annual delta on the same home value. State and local income taxes bite too: a top-bracket filer in New York City can face a combined state+city marginal rate near ~14.8% (2024 statutes). Even if you’re not in those brackets in retirement, the direction is obvious: location and tax brackets shape your withdrawal runway way more than squeezing an extra 0.3% out of your funds.

Baseline rule of thumb: Start 3.0-3.8% in 2025, use guardrails (+/-10% raise/cut caps), keep 24-36 months of essential spend in cash/T-bills, and run taxes like a business, Roth conversions and capital-gain harvesting only if they don’t trip IRMAA/ACA cliffs.

So, what do you do Monday morning? I’d keep it simple and specific:

• Pick your initial rate inside 3.0-3.8% based on fixed costs. Higher housing/taxes? Start closer to 3.0-3.3%.
• Fund the 2-3 year cash bucket now, Treasury bills or high-yield savings. Refill once a year after your fall review.
• Write guardrails in plain English, literally one page. If I remember correctly, people actually follow rules they can read without a CFA next to them.
• Map your tax lanes for this year: which brackets you’ll fill, where Roth conversions stop, and which deductions/credits you might lose if AGI creeps up. It’s not fun, but it’s money.

Next, queue up the adjacent decisions that strengthen the plan. These matter a lot in high-cost cities:

1. Social Security timing math. Price the longevity insurance. Compare claiming at 62/67/70 with your actual spending need and survivor benefit. I think most dual-earner households in costly metros end up delaying the higher earner to 70, but run your numbers.
2. TIPS ladders vs. bond funds. With real yields ~2% in Q3 2025, a 5-10 year TIPS ladder can harden your floor. Funds are simpler and more liquid. A mix is fine, I’m still figuring this out myself for a couple I work with in Boston.
3. Partial geo-arbitrage. Even a modest shift, downsizing within the metro, moving just outside the city tax line, or snowbirding for part of the year, can lower the safe rate you need by 0.3-0.5 percentage points. Not glamorous, very effective.
4. A small annuity. A plain-vanilla SPIA covering a slice of essentials can raise your sustainable spend by stabilizing the floor. Keep it small; you want flexibility. Shop quotes at today’s rates, not last year’s.

Look, this is complex and a bit messy. Anyway, the order still wins: nail housing and taxes, set a flexible 3.0-3.8% with guardrails, hold 2-3 years of cash, then improve Social Security and fixed income structure. Repeat each fall. It feels repetitive because it is, because that’s what works when your zip code is expensive.

Frequently Asked Questions

Q: How do I set a safe withdrawal rate if I’m retiring in NYC or SF?

A: Start with your fixed costs. If housing, taxes, insurance, and healthcare eat 50%+ of your budget (common in Manhattan, SF, Boston), I’d anchor closer to 3.0-3.3% rather than 4%. That means $30-33k per $1M in year one, before taxes. Build a simple guardrail: start at ~3.2%, only give yourself a raise after a positive year and if your portfolio is still at 22-25x your planned spending; trim withdrawals by 5-10% if markets drop ~20% or your portfolio falls below 20x spending. Keep 1-2 years of essential expenses in cash/short T‑bills so you don’t sell stocks at bad prices. And do this after-tax, model federal/state taxes and Medicare premiums so the cash you withdraw actually hits your checking account at the level you need.

Q: What’s the difference between using a flat 4% rule and a guardrail approach in a pricey city?

A: The article points out the classic 4% rule came from national averages that don’t look like $4,000+ rents and higher city taxes. Morningstar’s 2023 work pegs a 30‑year start closer to ~3.8% for a 60/40 nationally, and high-cost living likely nudges that lower. A flat rule says “set it and forget it.” Guardrails say “adjust when reality changes.” Example: start at 3.2%, cap raises to 0-2% if the portfolio is down, and cut by 10% if a drawdown breaches your downside guardrail. In expensive cities, that flexibility is the difference between staying solvent and being forced to sell risk assets in a slump, especially in the first 5-10 years when sequence risk bites.

Q: Is it better to sell my high-cost home and rent, or keep the house paid off to lower withdrawals?

A: It depends on your cash flow and taxes. Keeping a paid‑off place can slash withdrawals because your “rent” is basically taxes, insurance, and maintenance. If those ongoing costs run north of ~3-4% of the home’s market value annually, renting can actually be cheaper on a cash basis. Selling can free up equity to buy a TIPS ladder or annuity for a spending floor, but watch capital gains (up to $250k/$500k exclusion if you qualify) and state taxes. If you stay, consider a standby HELOC or, later in life, a reverse mortgage as an emergency buffer so you don’t have to overspend from the portfolio. I know, not glamorous, but it’s a real safety net. Anyway, run the after‑tax math, not just the mortgage nostalgia.

Q: Should I worry about sequence-of-returns risk in the first 5-10 years, and what can I do about it?

A: Yes, this is the hazard zone. The article flags it, and here’s an extra tactic menu I use with clients: 1) Build a 5-7 year “essential spending runway” with cash, T‑bills, and a short TIPS ladder so housing/healthcare are covered without selling stocks in a drawdown. 2) Use dynamic spending: small raises only after up years; pre‑agreed trims after down years. 3) Match fixed costs with safer cash flows, partial annuity or a longer TIPS ladder, so your must‑pay bills aren’t riding the S&P. 4) Tax tactics: in down markets, harvest losses; in lower‑income years, do modest Roth conversions to reduce future RMDs that could spike taxes and premiums. The goal is simple: keep your withdrawal rate steady enough that bad early returns don’t lock in permanent damage.

@article{safe-withdrawal-rates-for-high%e2%80%91cost-cities-rethink-4,
    title   = {Safe Withdrawal Rates for High‑Cost Cities: Rethink 4%},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/safe-withdrawal-high-cost-cities/}
}