The 4% Rule Is Fading — but That Doesn’t Mean You Should Spend Recklessly

When Bill Bengen published the paper that birthed the “4% rule” in 1994, it felt like a small act of financial kindness: a simple guideline to tell retirees how much of their nest egg they could spend each year without running out. Thirty years later, Bengen himself has revised that calculus. His new work suggests retirees might safely start at a higher withdrawal rate — roughly 4.7% under many historical scenarios — and other analysts have joined the chorus saying the rigid 4% gospel is past its prime.

What actually changed

The original rule was built on historical returns and a fairly narrow portfolio mix: mostly U.S. large-cap stocks and intermediate-term government bonds. Markets, asset classes and portfolio design have shifted since then. Bengen’s updated research expands the universe of assets considered (more stock categories, international exposure, and short-term cash instruments) and reexamines long historical stretches with more granular assumptions. The result: in many historical backtests, a moderately diversified portfolio could support a first-year withdrawal closer to 4.7% without exhausting principal over a 30-year horizon.

Quick, practical example: on a $1 million portfolio, 4% yields $40,000 in year one; 4.7% gives you $47,000. For a typical retiree, that’s real breathing room — or a nicer travel budget — especially when inflation is tame and markets are reasonably valued.

Who benefits — and who should still be cautious

This isn’t an invitation to splurge. There are clear limits.

• Early retirees face a special problem: sequence-of-returns risk. Big market losses in the first years of retirement can permanently damage a portfolio’s capacity to support higher withdrawals. That’s why many researchers, including Bengen in his updates, find lower safe rates for very long retirements — roughly 4.2% for a 50-year horizon in some scenarios.
• Inflation matters. Rapidly rising prices can force higher nominal withdrawals just to maintain the same lifestyle, which eats into principal.
• Personal factors — health, expected longevity, non-investment income like pensions or Social Security — change the math in meaningful ways.

In short: some retirees can responsibly take more than 4%; others will be safer sticking closer to the old rule or using a more conservative plan.

Smarter ways to use a higher withdrawal assumption

If Bengen’s update tempts you to loosen the reins, consider these guardrails:

• Use a dynamic withdrawal strategy. Rather than blindly increasing each year for inflation, let withdrawals flex with portfolio performance and a pre-set floor so you don’t panic-sell after a market drop.
• Build a cash or short-duration bond buffer to cover 2–5 years of spending. That reduces the chance you’ll sell equities in a down market.
• Adopt a bucket approach for short-, medium- and long-term needs. It’s a simple way to reconcile higher spending with protection against sequence risk.
• Rebalance and keep diversification real. Bengen’s newer results rely on broader stock exposure (large/small caps, international) and short-term cash instruments — not just tech-heavy large caps.
• Run sensitivity checks: test your plan against higher inflation, poor early returns, and longer lifespans. If you’re not comfortable interpreting the results, ask a fiduciary adviser.

When higher withdrawals make sense — and when they don’t

It tends to make sense to lean into a higher rate when:
• You have steady nonportfolio income (Social Security, pension), and your withdrawals are discretionary.
• Valuations look reasonable or yields on safe assets have improved.
• You’re near a typical retirement age (60s–70s) rather than retiring extremely early.
It makes less sense when:
• You expect a 40+ year retirement horizon.
• You lack an emergency buffer and would be forced to sell assets in a downturn.
• You don’t want to actively monitor and adjust spending if markets or inflation trend badly.

A candid note on the numbers

Rules of thumb are tools, not gospel. The update to ~4.7% is useful because it reflects modern portfolios and a longer data set. But those backtests are historical: they don’t predict the next decade. Markets, policy, and the inflation regime can change. That’s why any move to a higher withdrawal rate should be paired with flexibility and real-world safeguards.

If you’re curious how this could affect your plan, start by calculating what a few tenths of a percent mean for your spending and run scenarios: what if stocks fall 30% in year one? What if inflation stays elevated for five years? Small percentage differences can translate into significant lifestyle changes over decades.

You don’t need to choose a number and forget it. Thoughtful retirees combine a well-diversified portfolio, a clear emergency buffer, and a spending plan that can bend when markets force it. For many, that mix will let them spend a little more than the old textbook rule without courting unnecessary risk. For others, the comforting discipline of a lower withdrawal rate remains the wiser course.

If you’d like, I can outline a couple of sample withdrawal frameworks (one conservative, one moderate) and show the math for your specific balance and retirement horizon — send your target retirement length and portfolio size and I’ll sketch the scenarios.