Retirement Planning, Elder Law, and Senior Finance

1/4/2023 | By David Rodeck

The best-known retirement withdrawal strategy has some weaknesses. Here’s what you should know about the problems with the 4% rule.

William Bengen, a financial adviser, came up with this rule in a famous paper published in 1994. He reviewed how long a portfolio in a tax-deferred account would last on returns ranging from 1926 to 1976.

He found that retirees in all these scenarios would have their savings last at least 30 years if they took out 4% in their initial year of retirement and adjusted the dollar amount for inflation every year thereafter. For example, if you retire with $1 million, you would take $40,000 out for your first year of retirement. If inflation was 5%, in year two you would adjust and take $42,000 out.

“The 4% rule has been around for so long. Its beauty comes from its simplicity,” says Amit Sinha, of Voya Investment Management.

For this strategy to work, you must keep your money invested in a balanced portfolio for growth, somewhere between 50%/50% to 60%/40% stocks and bonds. While the return assumptions behind the 4% rule might work out in the long run, what matters for your portfolio is your actual investment performance. This is where the 4% rule can run into trouble.

Let’s say you hit a severe bear market at the start of your retirement, like now. This is a problem called “sequence of return risk,” in which you have the bad timing to run into large negative returns right when you retire. Under the 4% rule, you’d still keep withdrawing the same amount. If your $1 million portfolio falls to $800,000, a $40,000 withdrawal is now 5% of your remaining money. As you spend a larger share of your portfolio, it increases the chance that you run out of money later.

Wade Pfau, a professor of retirement income at The American College of Financial Services, recommends the 4% rule for those who want simplicity and to keep flexibility with their retirement savings. He also says it works best for those who trust the markets and won’t get rattled by downturns.

The 4% rule, though, isn’t the only target you can use. Other financial experts, including Bengen himself, have continued to research what works and what doesn’t for retirement portfolios.

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In a 2021 interview, Bengen revamped his rule, suggesting retirees could safely increase the initial withdraw rate up to 4.5%. They could do so by adding small-cap stocks to their portfolios for higher returns, as well as large-cap stocks and Treasury bonds.

Other experts recommend being more cautious, especially with market volatility and longer life expectancies. For example, a Morningstar research paper calculated 3.3% as a safe withdrawal rate.

Another option is to figure out how much you need per year to cover your retirement spending needs and see what percentage that is. If you have a $2 million portfolio and need $60,000 a year, that’s a 3% withdrawal rate, well within the experts’ recommended range. Then adjust each year for inflation.

David Rodeck is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit

© 2022 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

Read more articles about retirement like this one: How Retirement Income is Taxed.

David Rodeck

David Rodeck is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit