Back in 1994, financial adviser Bill Bengen introduced what became known as the 4% rule. The idea was easy to follow spend 4% of your savings in the first year of retirement, then adjust that amount for inflation every year after. The appeal was its simplicity. Retirement planning can feel overwhelming, but this formula gave people a straightforward way to think about how long their money might last. For many, it became the go-to guideline for decades.
Why the rule just changed
Now, Bengen says the math has shifted. Thanks to better research and stronger stock performance in recent years, he believes retirees can safely withdraw 4.7% instead of 4%. The original rule was based on a 50/50 mix of large U.S. stocks and government bonds. Today, Bengen’s model includes a wider mix of investments seven asset classes in total such as small and mid-sized U.S. companies, international stocks, bonds, and cash. That more diversified portfolio changes the outlook. With slightly more in stocks and less in bonds, the numbers now suggest retirees can afford to take out a little more each year.
What experts say about the update
Financial planners say the 4.7% rule is useful, but it shouldn’t be taken as a hard rule. Charles Schwab’s retirement experts note that it’s a “good starting point,” but every retiree’s situation is different. Spending in retirement is rarely flat. Health care costs, travel, inflation, and even lifestyle choices can cause ups and downs. TIAA Wealth Management explains that retirees often adjust their spending year by year depending on life changes and market conditions. Even Bengen himself has tweaked his own approach. When he retired in 2013, he started at 4.5%. But because the stock market did so well, he’s since raised his withdrawals to almost 4.9%.
The problem for average savers
While the higher withdrawal rate sounds like good news, it doesn’t solve a bigger issue: many Americans simply don’t have enough saved. According to the Federal Reserve’s 2022 Survey of Consumer Finances, the median retirement savings for households aged 55 to 65 is about $185,000. At 4%, that’s just $7,400 a year not nearly enough to cover living expenses. For many families, Social Security, part-time work, or other income sources will remain just as important as investment withdrawals. Research from Morningstar also shows that millions of households have little or no savings at all, which makes following any version of the rule nearly impossible.
How to use the new rule wisely
The update to 4.7% doesn’t mean every retiree should immediately spend more. Instead, experts suggest viewing it as guidance, not a guarantee. A financial plan should be flexible and revisited regularly as life circumstances change. For retirees with larger savings and a diversified portfolio, the new number may give them a little more breathing room. For others, it highlights the importance of building savings early and having multiple sources of income in retirement. In the end, the message is clear rules like this are helpful, but the best retirement plan is one that adapts to your reality.