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  • Writer's pictureThomas Hayes

How Much Can I Withdraw in Retirement? The 4% Rule and Beyond

Are you dreaming of lazy mornings sipping coffee on the porch while the sun rises, or perhaps envisioning exotic vacations and endless rounds of golf? Retirement holds a world of possibilities, but amidst these dreams, there's a practical concern: Will your retirement savings last?

Enter the 4% Rule, a simple rule of thumb that can serve as a starting point for those struggling with their retirement withdrawal strategy. Let's delve into what it is, and how it works in practice.

What is the 4% Rule?

Imagine the following scenario: Over your lifetime you've diligently saved for retirement, accumulating your nest egg. Now, as you bid farewell to the workforce, you're faced with the task of turning that lump sum into a steady stream of income to support your lifestyle in retirement.

The 4% Rule addresses this challenge. Born from a landmark study by financial planner William Bengen in 1994, offers a simple solution. It suggests that retirees can withdraw 4% of their portfolio's value in the first year of retirement, adjusting this amount for inflation each subsequent year. The idea? To ensure that your retirement savings last for at least 30 years amidst market fluctuations.

Bengen's study primarily focused on a portfolio comprised of 50% large-cap stocks and 50% intermediate-term government bonds. Using actual market return data, he examined how retirement portfolios with his parameters would have performed for those retiring each year from 1926-1992.

His findings led to the establishment of the 4% Rule, providing retirees with a systematic approach to withdrawal. All portfolios in his study that maintained an annually rebalanced 50/50 asset allocation survived for at least 35 years under the 4% Rule, with the majority of portfolios lasting 50 years.[1]

When examining other asset allocations, Bengen found that a smaller allocation to stocks did more harm than good, and portfolios holding 0-25% stocks had serious longevity issues. He also discovered that the 50/50 allocation was only optimal if the sole goal was portfolio longevity. If the goal was also portfolio growth, Bengen advised increasing the stock allocation to as close to 75% as possible.

How Does it Work?

Let’s break it down. Say you retire with a $1 million portfolio. Following the 4% Rule, you would withdraw $40,000 in the first year. If inflation sits at 2%, your withdrawal for the second year would be $40,800 ($40,000 + 2% inflation). This systematic approach aims to strike a balance between enjoying your retirement and preserving your savings for the long haul.

Beyond the 4% Rule: Exploring Alternatives

  1. Dynamic Withdrawal Strategies: Unlike the static nature of the 4% Rule, dynamic withdrawal strategies adjust your withdrawal rate based on market performance and other factors. One example is the "Guardrails Strategy," which caps withdrawals during market downturns to preserve capital, while allowing for higher withdrawals during bull markets.


  1. Income Floor Approach: This strategy prioritizes creating an income floor using sources like Social Security, pensions, and annuities to cover essential expenses. Any remaining portfolio funds can then be allocated to discretionary spending, providing flexibility without jeopardizing financial security.


  1. Bucket Approach: With this method, retirees divide their portfolio into different "buckets," each designated for specific time horizons or purposes. For example, the first bucket may hold enough cash and short-term investments to cover expenses for the next few years, while subsequent buckets are invested more aggressively for long-term growth.

Finding Your Fit

Each retirement withdrawal strategy has its pros and cons, and the right approach depends on your unique circumstances, preferences, and risk tolerance. While the 4% Rule offers a solid starting point, exploring alternative strategies can provide additional flexibility and security in an ever-changing financial landscape.

Consulting with a financial advisor can help you navigate these options, crafting a personalized plan that aligns with your goals and priorities. By combining an appropriate asset mix, regular reassessment, and ongoing flexibility, you can craft a plan that is best suited for your retirement needs. 


Disclaimer: The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

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