The 4% Rule: Outdated or Not? Here’s What You Need to Know

The 4% rule explained along with other expert “rules” to help educate yourself as you consider how much to withdraw from your retirement funds each year.


The weeks and months leading up to retirement are filled with many important decisions yet one of the most important may not have crossed your mind: Exactly how much should you withdraw each month from your retirement fund?  

This calculation depends on many unknowns including the length of your retirement, anticipated expenses and the returns you will receive on investments. Experts have devised several methods or approaches that you may want to consider when determining how much you will be able to withdraw. 

It's important to note that these “rules” are for informational and educational purposes and are not to be considered formal financial advice. Only you and your financial advisor should make any decisions regarding your retirement planning after thorough discussions and based on your specific and unique situation.

Saving is key

Regardless of the percentage you wish to withdraw, your calculations need to begin with how much you are able to save to support your retirement lifestyle. There are a variety of scenarios to considerThese are the most widely used:

  • The $1000 rule  says that you should save $240,000 for every $1000 you want to withdraw per month in retirement. (Experts say this usually allows for a 5% withdrawal target in most cases.)

  • The multiply by 25 rule is one of the easiest ways to estimate your retirement savings goalSimply consider the lifestyle you’d like to have in retirement, total the budget you need yearly to support it and multiply that amount by 25. (Most agree that is the amount of money you will need to have saved for retirement if you wish to withdraw 4% per year.)


Now, let’s dig into the different “rules” for withdrawal:


4% rule

In the 1990s, financial advisor Bill Bengen determined that retirees should plan a maximum 4% per year withdrawal target. He arrived at this figure after examining the interest returned from stocks and bonds over a historical 50-year period. He foundon average, that a retiree using this rule could expect to withdraw from a retirement fund for at least 30 years before it would be exhausted, regardless of market conditions


Bengen has recently stated, however, that this percentage was calculated as a worst-case scenario. He feels that many have adhered too strictly to this target and that other withdrawal percentages may be a better fit for current-day retirees depending on their circumstances.


Like Bengen, many experts feel that 4% withdrawal target provides a general “rule of thumb” for some retirees, although others say that it could be too aggressive, or perhaps not aggressive enough, depending on projected future stock and bond trends, inflation and the financial burden of any unexpected life events that may occur.

5% rule

Those who feel that 4% is too conservative of a withdrawal target usually support 5% withdrawal ruleKeep in mind that this withdrawal may be difficult to sustain and it’s recommended that no debt be held if someone were to consider the 5% ruleIf you are a long term investor with little debt and a diversified your portfolio you could consider increased withdrawals up to 5% or more per year.

3% rule

For those who are carrying debt in retirement or wish to leave a nest egg for their children, a 3.0-3.5% yearly withdrawal rule might be worth investigating. This target could allow you to continue to pay fixed expenses and weather any possible market downturns that might impact the value of your funds over the long term.

Also, if you are retiring early, you may want to contemplate this rule to see if your funds will last long enough to support you beyond the 20 to 30 year retirement window of those who typically exit the workforce in their 60s. 

This is considered to be the most conservative rule and may not be the best choice for everyone.

Rule breakers

It’s important to remember that your retirement goals are as unique as you are, and there’s no “one-size-fits-all” solution to how much you should save or how much you will need to support your retirement goals.


No one can predict the future including how long you will live in retirement or what the returns on your portfolio will be. Your portfolio may perform well enough so you can withdraw a lesser percentage per year, and still effectively withdraw the same or an even greater amount of money than you were able to at the previously higher percentage.

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