Time To Ditch The 4% Rule In Retirement

A jar of coins with the word retirement written on it.


Even the inventor of the 4% rule (Bill Bengen), which theorizes that withdrawing 4% in year one and then adjusting each year for inflation your retirement savings will last you a lifetime, is agreeing that we may need to take a more conservative approach given stock market volatility and soaring inflation.  “The problem is, there’s no precedent for today’s conditions,†Bengen told The Wall Street Journal.  Given the challenges of making forecasts right now, Bengen recommends cutting spending, if possible.

 

Some Investment Advisors Throwing Out The 4% Rule For Retirees

A jar of coins with the word retirement written on it.


A long-time rule of thumb for retirees is that they can safely take out 4% of their nest egg each year without the possibility of running out of funds before they pass away.  However, with the bull market run we have recently seen, many question whether this is still a safe bet.  Of course, much depends on your asset allocation.  If you are in all cash, you are probably looking at only a 2% withdrawal rate until interest rates start rising significantly.  Those who keep 20-50% in stock can reasonably draw between 2.5-2.8% per year and the money should last for 40 years, a little over 3% and it should last for 30 years, and just over 6% if you want the portfolio to last for 15 years, according to Morningstar Direct.

https://www.barrons.com/articles/retirement-withdrawal-strategy-4-percent-rule-51639177201

Is the 4% Rule For Retirement Outdated? By Derek Baine

A jar of coins with the word retirement written on it.


For decades, many financial planners advising retirees have recommended using the 4% rule.  It states that if you withdraw 4% of your portfolio each year in retirement, your nest egg could last 30 years or longer.  The problem is, if you enter retirement when the stock market is tanking and start withdrawing 4% each year while we are in a bear market, your portfolio may evaporate very quickly.  Some investment advisors are now recommending taking out less than the 4% in down markets and more during good markets.  San Francisco financial advisor David Yeske uses rules based on research done by Jonathan Guyton and William Klinger in the 200’s and he says that because of its flexibility, his clients are able to take out 5-6% in good years. However, in down years there will be some belt tightening so retirees need to figure out which expenses they can cut during down years.

https://www.wsj.com/articles/retirement-nest-egg-11617929631