Is the 4% Safe Rule Still True?

Posted by Drew Creekmur, MSPFP on 9:00 AM on April 13, 2021
Drew Creekmur, MSPFP

Retirement compass


The 4% Safe Withdrawal Rule has been a "gold standard" of retirement planning for about 25 years now. It's no secret that much has changed over these decades. Does this rule still stand? 

The 4% rule says that starting in the first year you retire you can pull out 4% from your investments (adjusted for inflation) each year and you will never run out of money assuming a thirty-year retirement. 

We have to remember that “rules of thumb” are a good starting place, but this particular rule has become one that’s often quoted, accepted with blind faith, and is not usually adjusted for each individual scenario.

Recently Bill Bengen, the creator of this guideline, has written some interesting material adjusting and fine-tuning his 4% Safe Withdrawal Rule. It was never his intention that this rule be treated like a law of nature or be used in a “one-size-fits-all” way. His goal was to create a simple starting place for individuals to determine the amount they could safely withdraw.

The current research indicates that the safe withdrawal rate right now is closer to 5%. Historically that number has been as high as 7%. If those historical averages continue, it’s possible that you could start in year one of retirement pulling out 7% of your investment accounts, adjust that for inflation each year, and not run out of money for a 30 year retirement.

The danger of accepting general guidelines with blind faith could cause you to limit yourself more than necessary. For example, following the 4% rule rather than using historical guidelines could keep you from being able to travel, give gifts to family or donate to your favorite charity. Our goal with money is not to just to end up with a higher net worth or large investment account. Rather, we encourage our clients to save and invest money so they're able to live the life they want to live.

Our goal is that you are able accomplish the things that are most important to you. After all the years of hard work, we want each of our clients to be able to realize their goals during retirement.

How should you determine your personal “safe withdrawal rule”?Get started by knowing your own numbers:

  • Your annual expenses.
  • Your current investment performance.
  • The amount of risk in each of your accounts.
  • Calculate all of your income sources.

With a clear picture of your financial situation you are able to create a projection of safe withdrawal that’s right for you. If you are not confident of the actual amount you are able to pull out of your investment accounts during retirement, we would encourage you to take some time to work through your real numbers. If you need help with those calculations, give us a call.

We want you to be able to fully enjoy the results of your years of labor and have the peace of mind that comes from knowing your personal “safe withdrawal rule."

Do you have other questions about retirement?

Text our team for answers at 309-925-2043!


Topics: Retirement

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