The 4% Rule: Is It Still a Reliable Guide for Retirement Withdrawals?

One of the most commonly cited strategies in retirement planning is the 4% rule—a guideline intended to help retirees avoid outliving their savings. It’s simple, easy to remember, and has been used for decades. But does it still hold up today?

What Is the 4% Rule?

The 4% rule is a retirement withdrawal strategy based on a simple premise: in your first year of retirement, you withdraw 4% of your total retirement savings. In each subsequent year, you adjust that dollar amount for inflation.

For example, if you retire with a $2 million portfolio:

• In year one, you withdraw $80,000 (4% of $2 million)
• In year two, you withdraw $80,000 plus inflation adjustment
• This pattern continues each year

Assuming a balanced investment strategy, by following this formula, you should have a very high probability of not outliving your money during a 30-year retirement.

Origins of the Rule

The 4% rule was popularized in the 1990s by financial planner William Bengen, who ran simulations using historical market data. His analysis showed that, based on past performance, a retiree with a portfolio of 50–75% stocks and the rest in bonds could withdraw 4% annually and not run out of money for at least 30 years, even during periods of market stress like the Great Depression or high inflation in the 1970s.

It became a rule of thumb—but it was never intended as a one-size-fits-all solution.

Why the 4% Rule May No Longer Be Sufficient

While the 4% rule provides a useful starting point, several economic shifts have raised legitimate questions about its reliability today:

1. Lower Expected Returns

Bond yields have remained historically low for years, and future equity returns are projected to be more moderate compared to past decades. This changes the math.

2. Longevity Risk

Many people today live well beyond 30 years in retirement. A 65-year-old couple has a significant chance that one spouse lives into their 90s or beyond. A longer retirement requires more conservative withdrawal assumptions.

3. Inflation Volatility

Inflation, once relatively tame, has shown significant spikes in recent years. Sustained high inflation erodes purchasing power and puts pressure on portfolios.

4. Sequence of Returns Risk

Retiring just before or during a market downturn can severely impact long-term sustainability. A fixed withdrawal rate doesn’t account for poor market performance in the early retirement years.

How the 4% Rule Can Still Be Useful

Despite its limitations, the 4% rule can still serve as a baseline planning tool. It provides a general framework for estimating how much savings you may need and how much income you could reasonably expect to generate.

For example, using the 4% rule:

• A $2.5 million portfolio could support ~$100,000 in annual income
• To generate $150,000 per year, you’d target ~$3.75 million in savings

But it should be seen as a starting point for discussion, not a rigid withdrawal strategy.

A More Flexible Approach to Retirement Withdrawals

Rather than relying on a fixed percentage, many retirees benefit from a dynamic withdrawal strategy—one that adjusts based on real-world conditions. Consider the following:

1. Guardrails Approach

This strategy sets upper and lower limits for withdrawals, allowing you to increase income in strong markets and tighten spending when returns are weak. It helps preserve long-term sustainability while offering flexibility.

2. Bucket Strategies

Segmenting your assets into short-term (cash), medium-term (bonds), and long-term (stocks) “buckets” can help manage sequence risk and provide emotional reassurance during downturns.

3. Required Minimum Distributions (RMDs)

After age 73, withdrawals from pre-tax retirement accounts are required by the IRS. Using RMDs as a guide can help structure your income in retirement while managing taxes.

4. Tax-Efficient Withdrawals

Withdrawing strategically from taxable, tax-deferred, and tax-free accounts can significantly extend the life of your portfolio and reduce your overall tax burden.

Personalization Is Essential

No two retirements are the same. Variables like your desired lifestyle, health care costs, legacy goals, tax situation, and market conditions all play a role in how much you can—and should—withdraw.
A rigid rule like 4% doesn’t consider:

• Spending variations over time
• Large one-time expenses
• Income from Social Security, pensions, or part-time work
• Changes in tax policy or personal health

A tailored financial plan that incorporates these variables can deliver much more reliable and sustainable results.

Final Thoughts

The 4% rule can serve as a useful benchmark, but it shouldn’t be your sole guide for retirement income planning. What matters most is having a flexible, adaptive strategy that accounts for market conditions, tax implications, and your personal goals.

If you’re approaching retirement—or already in it—now is the time to revisit your withdrawal strategy. A carefully constructed plan can help ensure your money not only lasts but works as efficiently as possible throughout retirement.

At Tenet Wealth Partners, we help individuals design personalized retirement income plans that prioritize sustainability, tax efficiency, and peace of mind. If you’re ready for a more tailored approach, we’re here to help.

Investment Advisor Representative of Sanctuary Advisors, LLC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

The information provided in this communication was sourced by Tenet Wealth Partners through public information and public channels and is in no way proprietary to Tenet Wealth Partners, nor is the information provided Tenet Wealth Partner’s position, recommendation or investment advice.

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