The 4% Rule Revisited: A New Take on a Retirement Classic
Rethinking Safe Withdrawal Rates for Modern Retirees
The most famous retirement rule of thumb just got an upgrade. Bill Bengen, the financial planner who gave us the 4% rule, now says the number is 4.7%. That’s good news if you’re planning to retire someday, but it comes with a big asterisk.
When I first wrote about the “4% rule” in Wealth Your Way (Chapter 15), it hit me as an elegant oversimplification. Elegant, because it gives aspiring retirees a quick yardstick: live on 4% of your portfolio each year, and you’re financially independent. Oversimplified because the real world isn’t that neat.
It was never meant to be gospel. It’s a planning guide, not a law of physics.
A Richer Retirement, and a Richer Rule
Bengen’s new book, A Richer Retirement, digs into the nuance that’s been lost in decades of shorthand. Written in plain English, the book is accessible, easy to read, and grounded in evidence-based research.
What I especially appreciate is his transparency about the assumptions underlying his “SAFEMAX” withdrawal rate (the historical worst-case maximum you could have withdrawn each year without running out of money over a 30-year retirement).
Using a wider set of historical data and modeling seven different asset classes instead of three, he refines his approach to reflect more realistic, complex market conditions.
The Eight Elements
His framework now includes ten assumptions—the “Eight Elements,” plus inflation and market valuation. The Eight Elements aren’t just buzzwords. They’re critical factors shaping how much you can safely withdraw. Ask yourself:
Annual withdrawal amount: Are you withdrawing a fixed dollar amount or adjusting for inflation?
Planning horizon: Are you planning for 30 years, or could your retirement last 40+?
Taxable vs. non-taxable accounts: Withdrawing from tax-advantaged accounts, taxable ones, or a combination of both?
Leaving a legacy: Want to leave money behind? That usually means withdrawing less.
Asset allocation: Stocks, bonds, real estate, and alternatives in the mix?
Rebalancing frequency: How often do you adjust your portfolio back to target allocations?
Index funds vs. active management: What’s your risk appetite?
Withdrawal timing: Monthly, quarterly, or annual withdrawals?
In other words, withdrawal planning is not “set it and forget it.” It’s a process with moving parts, tradeoffs, and personal priorities that a single number can’t capture.
Inflation and Market Valuation — The Hidden Risks
Bengen warns inflation is the wild card. His “Universal SAFEMAX” of 4.7% holds only if inflation behaves like it has historically. But what if inflation spikes, or markets crash?
For example, the 1970s stagflation wiped out many portfolios, even with conservative withdrawals. Today’s high stock valuations could set up a similar challenge, meaning even a 4.7% rate might require adjustment if returns disappoint.
Why 4.7% Still Isn’t Your Magic Number
The new number is encouraging, but it’s not one-size-fits-all.
One key assumption in Bengen’s SAFEMAX: it aims for a zero-portfolio balance at the end of 30 years. That’s fine if you want to spend down to your last dollar.
But if, for example, you want to leave a meaningful inheritance or want a margin of safety, you might start lower. If you’re flexible and willing to cut back in down years, you might start higher.
Take Dominique and Damien as examples. Dominique wants to leave $500,000 to her kids, so she starts at 3.5% and treats any market outperformance as a bonus. Damien, on the other hand, wants to travel extensively in his first decade of retirement. He’s comfortable starting at 5%, but he knows he’ll need to scale back if markets turn against him.
“Typically, a SAFEMAX between 5.25% and 5.5% appears approximately correct,” Bengen suggests. “I see no need to go as low as the ‘Universal SAFEMAX’ of 4.7% unless inflation again becomes a serious problem.”
Sounds generous, but remember, the “safe” in SAFEMAX is historically safe, not future-proof.
As the old Danish proverb warns us: “It’s difficult to make predictions, especially about the future.”
Guidepost, Not Goalpost
If there’s one takeaway I’d underline in bright yellow, it’s this: Whatever the number — 4%, 4.7%, or 5.25% — treat it as a guidepost, not a goalpost. The danger comes when we turn a historically derived figure into an unshakable truth.
Bengen is clear on this point: “The so-called 4% rule is not an immutable law, like Newton’s Laws of Motion… I consider myself more as a reporter of what has occurred in the past than as a Nostradamus prophesying what will occur in the future.”
That’s why flexibility is your retirement superpower. Adjust withdrawals when markets change. Adapt to inflation. Rethink your plan if your spending needs shift.
Let the 4% rule inform your plan, not be your plan.
Tools to Help You Navigate
In his book, Bengen recommends the Big Picture app for testing withdrawal rates against different asset allocations and horizons. It’s not a crystal ball, but it can help you understand the odds and visualize risk.
Bengen also has his own helpful charts, tables, and a downloadable spreadsheet on his website.
Beyond calculators, you should regularly review your plan and make realistic adjustments. Your withdrawal rate today should not be set in stone for years to come.
Bottom Line
Read Bengen’s book. Learn from the data. Recognize the limits. A single number will never replace a dynamic, personalized plan. Run your numbers this week and see how they hold up under various market scenarios. The 4% (or 4.7%) rule can help you start the journey. Flexibility will help you finish it.
As always, invest often and wisely. Thank you for reading.
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Originally published at www.CosmoDeStefano.com
I've been reading and watching a fair bit of podcasts on this subject as I try to convince my husband we don't need to wait so long to step back/ retire. Erin on Money had a great podcast on the topic that got us talking about how conservative the 4% "rule" is, how the research indicates that you probably want to spend a bit more early in retirement and a lot less as your health declines (another huge factor in what you'll spend and how much you'll need.) Good read!