By Josh Katzowitz, WCI Content DirectorWhile WCI readers could spends weeks or months (or years!) debating how much you can withdraw from your nest egg when you retire, the guideline that is (sort of) universally accepted is the 4% rule, developed by Bill Bengen in 1994 that basically says you can withdraw 4% of your portfolio every year adjusted for inflation and, with a high degree of likelihood, not run out of money after 30 years.
Yes, the guideline, which is based on historical stock and bond performances, seems a little too simple for such a complex issue. Yes, many financial experts have poked holes in the guideline in the decades since Bengen released it into the wild. Yes, some point to the Sequence of Returns Risk (SORR) as a potentially huge problem. Yes, some say the rule is outdated because it’s based on a 50% stock, 50% bond allocation. Yes, some believe you should really only withdraw 3% or that you’d be just fine withdrawing 6%.
As Forbes wrote a few years ago, “The 4% rule is simple, easy to follow, and totally misunderstood.”
Still, the easiest way to calculate whether you’re financially independent and could probably safely retire is to take how much you spend per year and multiply it by 25. That would mean you can withdraw that 4% per year and be good to go.
That means Bengen, in retirement, must spend 4% of his portfolio every year while living happily ever after. Er, not so fast.
The 4% Rule and Whether People Agree with It
Investing guru Larry Swedroe has said that 4% isn't all that safe. Instead, he claimed 3% was more appropriate if you wanted your retirement nest egg not to get cracked. That 1% isn’t some blip on your spreadsheet either. It has real-world consequences.
As Dr. Jim Dahle wrote, “Using the 4% rule, if you need $100,000 in portfolio income in retirement, you need to have a $2.5 million portfolio on the eve of retirement. If you then change the number to 3%, all of a sudden, you need $3.33 million. If your original plan was to save $50,000 per year and earn 5% annualized returns to get to $2.5 million in 25 years, then you're now left with a dilemma. You can either save another $17,000 per year, you can work an extra five years, or you can spend 25% less in retirement, none of which are particularly attractive.”
But other studies and theories show you could spend more than 4% and still thrive, especially if you can be flexible in retirement.
The Guyton-Klinger approach says that 99% of retirees can start with an initial draw rate of 5.2%-5.6% before having to adjust for inflation, and ratcheting rules could allow you to increase spending by 10% a year as long as SORR doesn’t rear its ugly head.
Even the 4% rule isn’t capping you at 4%. The idea is to start with 4% of your portfolio just before you retire and then adjust for inflation from there.
Are people really going to spend exactly 4% of their retirement portfolio every year? Almost assuredly not. But that doesn’t mean you can’t use it as a simple framework to determine your FI number and to decide whether you actually have enough to end your working days.
More information here:
The Silliness of the Safe Withdrawal Rate Movement
How to Spend Your Nest Egg — Probability vs. Safety First
How Much Does Bill Bengen Spend in Retirement?
Bengen doesn’t spend 4% of his portfolio. And in reality, it was never a 4% rule at the start. He actually found the percentage to be at 4.15%, but he rounded it down to make the number simpler.
As USA Today notes, he’s also no longer looking at a portfolio consisting of an equal split of large cap stocks and US government bonds. These days, Bengen’s investment portfolio consists of equities across large, medium, and small businesses, and he’s broadened his horizons with international stocks and Treasury bills. He has seven asset classes now, not just two.
For his new book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, he’s also updated and increased the 4% rule. It’s not the first time he’s done that. When he retired in 2013, Bengen adjusted the 4% guideline and spent 4.5% of his nest egg that first year. As he said, “That turned out to be too conservative. Because the stock market has done so well, I’ve been able to adjust upward.”
In his new book, Bengen has made the 4% rule the 4.7% rule. But he spends more than that. He’s actually now at 4.9%.
More information here:
Fear of the Decumulation Phase in Retirement
A Framework for Thinking About Retirement Income
How Much Should You Spend in Retirement?
Whether you spend 3%, 4%, 5%, or 10% per year in your retirement, I suspect that almost all of us are going to be nervous about outliving our money no matter what. As Morningstar’s Christine Benz discussed in her WCICON23 keynote (by the way, she’s back for WCICON26!), figuring out what to withdraw in retirement is the hardest problem in all of financial planning. After all, you don’t know what inflation will be like, you don’t know how stocks will perform, and you don’t know how long you’ll live. Everything that’s unknown can be scary.
Making matters worse, a 2023 Fidelity study showed that 52% of people who were surveyed felt like they were not on target for retirement and “face modest to significant adjustments to their planned retirement lifestyle if they don’t take action to make up for the shortfall.”
But perhaps if you know the man who came up with the 4% rule is now basically spending 5% per year, that should make you feel a little better, right?
“Yeah, 4.7% . . . is a worst-case scenario,” Bengen told Rethinking65.com. “There was only one retiree in history [based on my research]—retired in October 1968—who encountered conditions that forced them to have a withdrawal rate that low. Over the last 100 years, the average has been 7%, believe it or not. And if you look at today’s environment, even though this is not a great time to retire—in terms of maximizing retirement income, because of the high stock market valuation—you can still, I think, withdraw 5.25%, 5.5%. So, 4.7% is really very stingy spending; it’s only for those who are so conservative they want to be sure nothing in history has gotten worse than what they may experience.”
Money Song of the Week
As we say a fond farewell to Rick Davies, the vocalist and keyboardist for progressive/pop rock group Supertramp who died at the age of 81 earlier this month, let’s take a listen to the 1975 tune, Poor Boy, which finds a dude who fantasizes about having the kind of money that would cause him to complain about the little things in life that just don’t matter. Later in the song, this boy comes to the conclusion that maybe just having enough money to live on is better than having so much of it that you’re not sure what life really should be.
As Davies sings,
“I try all I can understanding all the fools/And all their money/When half of what they got/You know they never will use/Enough to get by suits me fine/I don't care if they think I'm funny/I'm never gonna change my point of view.”
Sadly, all of the money Supertramp made eventually became an issue.
Three members of the classic lineup sued singer and guitarist Roger Hodgson and Davies in 2021 for ignoring an agreement made in 1977 that would entitle them to some of the band’s songwriting royalties.
Davies settled with the trio in 2023, but they accused Hodgson of stopping payment “from their share of the hundreds of thousands of dollars in annual revenue starting in 2018 without explanation,” according to Courthouse News Service. Reportedly, Hodgson and Davies each received 27% of the royalties, while the other three were entitled to 11.5% apiece from the six albums released from 1973-1983.
In August 2025, a US appeals court ruled that Hodgson owed the other three members the money he hadn’t paid to them. Which, if you know Supertramp's discography, feels so logical.
More information here:
Every Money Song of the Week Ever Published
Tweet of the Week
Kirby Puckett- in ‘92 I was called up 2 @mlb + just received my 1st check. Staring at it proudly. Puck walked over + said “1st big league check huh?” I nodded with a smile. He reached into his pocket + pulled out a big $ roll + said “u want me to cash it for u?” Classic Puck
— Mike Trombley (@MikeTrombley21) October 24, 2018
I don't know how much money Mike Trombley made in 1992. But in 1993, the former Minnesota Twins pitcher earned $124,000, the equivalent of $277,000 in today’s dollars. Puckett made $5.3 million that year ($11.8 million today).
This is a good reminder that you can be one of the best athletes on the planet, and still, there’s always going to be somebody who’s way richer than you (and doesn't mind telling you about it).
Do you believe in the 4% rule? Is it too conservative or too risky? What other strategies are you thinking about for the decumulation phase in retirement?
[EDITOR'S NOTE: For comments, complaints, suggestions, or plaudits, email Josh Katzowitz at [email protected].]
I’ve been retired for a few years now and I have done a lot of reading about retirement and I have not come upon any discussion of my own situation. My residual expenses are negative, meaning my yearly budget is less than my passive income plus social security. So while I’m willing to spend 3-4%, I won’t need to. I don’t think I’m especially cheap, and my advisor thinks my family is in a good place.
But if I had been paying attention (I wasn’t) in the decades leading up to retirement and I was figuring out how much I should have saved, would I have just used 25 times my budget? (since I was not aware of what my residual expenses would wind up being)
Sure.
I find a lot of the Bill Bengen updates interesting, as if we roll back in time a couple of years we were teetering on the edge of recent 4% rule failures (in the typically rushed spreadsheet/historical analysis cases that are used to justify the 4-4.17% ranges) – and we’re still within a market correction away from the 2000 cohort joining the 1929 and 1965-1968 cohorts where a fixed withdrawl rate doesn’t work.
I do think the 4.7% can make sense for people willing to withdraw 3.5% in market downturns, but if you honestly have that flexibility already just working two more years and being able to treat 3.5-3.65% as the new floor is probably going to be more appealing, especially to the demographic who are prone to underspending (ironically enough saving more and knowing you can use the failsafe SWR as a suggested minimum withdrawal and nudge it up as the CAEP values suggest doing so).
Again, I’d posit that psychologically everybody who has spend more than 20 minutes ruminating on what their real SWR comfort level is would be better served digging through BigERN’s spreadsheet, taking to heart the fact that a very US-equities-heavy portfolio actually performs the best even in elevated CAEP situtations, and then doing the exact math to find that with the conservative horizon retirement range (~40 years – remember, the goal is to add life to our years AND years to our life by retiring), they’ll find themselves closer to the 3.7% range where long periods of high inflation and low returns might push them to paring back down to 3.5% withdrawal rates until the market turns back around. As soon as you have the much more failsafe biased numbers in there, it can actually become the stick to force yourself to really decumulate like you mean it (becaues expected returns ARE 2x what you’re spending, so actually start enjoying life).
I will start at 5%/yr, if it’s a decent year. Any bad years, I may adjust withdrawals down if I am able to, depending upon if I’ve shifted everything to a Rollover Roth account, which will avoid RMDs and taxes, and possibly avoid taxation of SS benefits too.
I’d suggest first working out what your ‘hard mandatory’ withdrawals are and what they’d need to cover through a bear market, then decide which things are in the ‘I wouldn’t really want to do without’ range and pad those in there. If you want to have that flexibility, it’s absolutely there, just realize that if we find ourselves in a protracted bear market, you’ll be having to cut back considerably to avoid the SORR punishing your starting balance while the equities in particular are down. While ERN describes it as a ‘squeeze the balloon’ problem, we’re squeezing a balloon of unknown size and hoping for it not to pop. If you have other good options to supplement income, you can end up with a (to me) more palatable option space of ‘in down market years, go with a BaristaFI/Consulting Gig Work’ type setup to offset some of the spending in those down years rather than dial down consumption to that lower level if markets are down 20% – and as they recover, keep doing the CAEP-based calculations on what SWR makes sense going forward.
The other approach is to get to where the flexible 5% is an option, then just work another year. Same approximate flexibility regime, but running monte carlo simulations against that I keep finding that the number of years I spend at the lower guardrails of a withdrawal strategy when playing in ProjectionLab drops considerably from a single year of added work, and the ‘first decade performance’ really takes over on how much spending goes forward.
Suggested Reading Links:
https://www.madfientist.com/discretionary-withdrawal-strategy/
https://earlyretirementnow.com/2023/06/16/flexibility-swr-series-part-58/
Hey Josh, great article man. I love how Mr. 4% himself is more closer to 5%. It seems those who believe in being 4% or even more conservative at 3% are natural frugal people whereas those who are more flexible and want a higher withdrawal rate are bigger spenders. Do you know if financial planners take into account spending habits when determining a withdrawal rate in retirement for the clients?
If they’re good financial advisors, they will take into account their clientele – and practically, the ‘plan on 3%’ crowd are the ones most likely to hit their goals despite it being a 33x multiple, because these are already the people who are closer to the ‘reusing zip ties and saran wrap’ side of the spectrum of spenders…
[Yes, I’m calling myself out with that one].
Ironically the role of their financial advice sources needs to be more along the lines of “What else is this money for? You can safely decumulate at 3% (which in reality probably means spending under half of the investment income while accumulating an even bigger nest egg for rainy days), so get to it. If you don’t decide when the party is, somebody else will”.
You mean ziplock baggies not zip ties I think.
I do actually mean zip ties (and yes, I get about 7 reuses on ziploc bags)… meaning I’m definitely ‘that guy’.
Long term health care if that Cruise Ship all you can eat life style does not work out. What is cost of long term health care?
Rather than focusing so much on whether the forward 30 year safe withdrawal rate will be 4%, 3%, etc., investors may be better served by investigating what portfolios would have supported significantly higher SWRs, such as those tilted toward small-cap value stocks, gold, and long-term bonds. Since 1970, the 30 year SWR for a ‘vanilla’ 60/40 was 4.1%. But a portfolio with 30% in large-caps, 30% in small-cap value, 20% in long-term Treasuries, and 20% in gold has a 6.4% SWR. That’s more than a 50% increase in potential retirement spending.
S.icing and dicing hasn’t been very popular for the last 15 years, but it sure was in the 2000s.