Does Retirement's 4% Safe Withdrawal Rate Still Work?


What is the optimal strategy for spending your hard-earned retirement savings? We know the need to make prudent decisions when deciding how to invest, but spending money in retirement feels scary.

One of the great fears – mainly as Americans live longer – is that we will somehow outlive our money. Such an experience has resulted in many efforts to preserve retirement income and ensure that our retirement savings last as long as possible.

One of the critical metrics of personal finance in retirement is the 4% retirement rule. This rule can be a good guideline. However, it has some severe drawbacks or alternatives that you must consider.

What Is the 4% Safe Withdrawal Rate Retirement Rule


The 4% retirement rule or the safe withdrawal rate rule is a guideline for how much money an individual should withdraw yearly as retirement income from their investment portfolio without running out of money.

Financial advisor William Bengen invented the rule of 4 in 1994, using historical data on stock and bond returns over 50 years from 1926 – 1976.

History of the 4% Rule

He used the market performance data with a 60/40 portfolio (60 percent equities, 40 percent bonds) to gauge how a person who retired during that period would have faired in a period with massive stock market rises and significant crashes. Bengen believed it was relatively reflective of the market volatility that the average retiree would face.

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