When it comes to retirement planning, one rule has shaped the way we think about safe withdrawals for decades: the 4% rule.
It’s the foundation of countless financial plans. Save enough, withdraw 4% annually, and your portfolio should last 30 years. But what if that rule is outdated?
What if—based on updated research—you could safely withdraw 4.7%, or even more, without running out of money?
I recently sat down with the man behind the 4% rule himself: Bill Bengen. A former aeronautical engineer turned financial advisor, Bill’s original research changed retirement planning forever. And now, with new research, he’s helping retirees take that next step: toward a richer, more flexible retirement.
Let’s dive into what’s changed—and how you can apply these insights to your own retirement plan.
How Bill Bengen Created the 4% Rule
Back in 1994, financial advisors didn’t have a science-backed way to answer two critical questions:
- How much do I need to retire?
- How much can I safely spend each year in retirement?
Bill didn’t settle for guesswork. He analyzed historical market data to find the worst retirement outcome on record—someone who retired in October 1968, just before back-to-back bear markets and a decade of double-digit inflation.
He asked: What withdrawal rate would have allowed even that retiree to avoid running out of money over 30 years?
The answer: 4%.
That became the standard. If it worked in the worst scenario, it should work for everyone else, right?
The 4% Rule Isn’t a Best-Case Scenario—It’s a Worst-Case One
Many people misunderstand the 4% rule. They assume it represents an average safe withdrawal rate. But Bill actually designed it for the worst-case historical conditions.
That’s key—because most retirees don’t face those same conditions. So if you base your plan on a worst-case scenario, you may end up living more cautiously than necessary.
What Bill’s New Research Reveals
Bill updated his model by adding more asset classes to the portfolio—seven total, including:
- Small-cap stocks
- Micro-cap stocks
- International equities
- Treasury bills
With this broader diversification, Bill found the worst-case safe withdrawal rate increased to 4.7%.
He also noted that the average retiree could have withdrawn 7%, based on historical data. Even some retirees could have started retirement with an 8% withdrawal rate, particularly those who retired in early 2009 after the financial crisis.
Why Does This Matter?
Let’s say you retire with $1 million.
A 4% withdrawal rate gives you $40,000 a year. But a 4.7% withdrawal rate? That’s $47,000.
That extra $7,000 per year could fund more travel, a higher quality of life—or simply offer peace of mind.
What Affects Your Safe Withdrawal Rate?
Bill identified two main factors that influence how much you can safely withdraw:
- Inflation Outlook: If you expect low inflation over the first decade of retirement, your money stretches further.
- Stock Market Valuations: If you retire during a time when markets are undervalued, you increase your odds of strong long-term returns.
Retirees who enjoy low inflation and attractive stock valuations can start with a higher withdrawal rate—often safely.
The Surprising Truth About Asset Allocation
Bill’s research found something unexpected about portfolio allocations.
He expected a simple upward curve—more stocks = better outcomes. Instead, he found a mesa, or flat plateau. Between 45% and 75% stocks, safe withdrawal rates remained fairly constant.
If you go too conservative or too aggressive, your withdrawal rate suffers. The sweet spot lies in a balanced, diversified allocation.
Retirement Spending Isn’t Linear
Many retirees don’t spend money evenly across all retirement years. Here’s what often happens:
- Early retirement: Higher spending—travel, experiences, family.
- Mid-retirement: A slowdown in lifestyle expenses.
- Late retirement: Rising healthcare costs, but fewer discretionary expenses.
That’s why it’s important to customize your withdrawal strategy—instead of relying on a flat percentage forever.
A Better Way to Plan
You can’t approach retirement with a rigid rule. Instead, Bill encourages retirees to:
- Evaluate their personal factors: Retirement goals, income sources, risk tolerance, lifestyle.
- Assess the economic environment: What’s inflation doing? Are stock valuations high or low?
- Choose the right withdrawal rate—based on real data: In some years, 4% may be too low. In others, 4.7% might still be conservative.
What About Market Volatility?
Bill emphasizes one key insight: inflation is the bigger long-term risk, not market dips.
A 30–40% drop in stocks might feel scary, but portfolios often recover. On the other hand, prolonged high inflation forces you to withdraw more each year, compounding damage over time.
His advice?
Don’t panic during market declines.
Do take action if inflation spikes.
From Theory to Real-Life Planning
Here’s the biggest takeaway:
The 4% rule was never meant to be one-size-fits-all.
Some people can spend more, depending on:
- Their asset allocation
- Their retirement timing
- Their spending needs
That’s where true financial planning comes in. You need to blend empirical research with real-life considerations like Social Security timing, healthcare costs, income variability, and spending patterns.
What This Means for Your Retirement
Let’s say you plan to delay Social Security until 70. From 62 to 70, you’ll draw more heavily from your portfolio—possibly exceeding 5% withdrawals. But once Social Security kicks in, you’ll likely draw far less.
Does that break the 4% rule?
Not if you’ve planned for it.
In fact, strategic timing—like Roth conversions during low-income years—can make your retirement dollars go even further.
Final Thoughts: Rethink What’s Possible
If you’ve been holding yourself to a rigid 4% ceiling, it’s time to rethink what’s possible.
Bill’s research confirms what we already see in real-life planning:
You can often spend more—without sacrificing peace of mind.
But that takes more than rules of thumb. It takes a personalized, dynamic approach to retirement income planning.
How Root Financial Helps
At Root, we use the most current research (including Bill Bengen’s work) to guide your strategy. But we don’t stop there.
We help you:
- Understand your options
- Plan for flexibility
- Align your spending with your values
- Make adjustments when life (or markets) change
We don’t just want you to retire—we want you to retire well.
If you want to find out how much you can safely spend (or whether your plan is on track), reach out to us here.
The information presented is for educational and informational purposes only and should not be construed as personalized investment or financial advice. The content discusses general principles and research related to portfolio withdrawal strategies and is not intended to recommend any specific course of action for any individual.
Examples and scenarios discussed—including withdrawal rates and retirement planning strategies—are hypothetical and for illustrative purposes only. They do not reflect any specific client situation and should not be relied upon when making personal financial decisions. Past performance is not indicative of future results. All investing involves risk, including the potential loss of principal.
This content may include hypothetical or forward-looking performance examples. These are intended to illustrate concepts and do not reflect actual investment results or guaranteed outcomes. Assumptions used may not reflect real-world market conditions or client behavior. Actual results may vary significantly.
Root Financial Partners, LLC provides tax planning as part of its financial planning services. However, we do not provide tax preparation services, represent clients before the IRS, or offer legal advice.
Clients should consult their CPA or attorney before implementing any investment, tax, or legal strategies discussed. Nothing in this content should be interpreted as a recommendation to take a specific action without considering your unique circumstances.