Ditch the 4% Rule For This Retirement Withdrawal

""The 4% Rule" was based on a worst-case scenario for those retirees circa 1968. This was before the Bear Market and double-digit interest rates and inflation of the 1970s and the Carter Administration. "The 4% Rule was Bengen's calculated SAFEMAX rate, i.e., the maximum safe rate of withdrawal based on economic conditions at that time (1968). The SAFEMAX rate would later be revised to 4.5% if tax-free and 4.1% for taxable."

""The 18% annual gains of the S&P 500 from 1982 to 1999 were historically abnormal and could skew projections to be over optimistic in the future. "Over a longer period, Bengen stated that history leaned closer to a 7% average SAFEMAX rate, again factoring inflation and prevailing interest rates into the equation."

"One of the primary criticisms of The 4% Rule was that blind dedication to it could leave a portfolio short if a prolonged Bear Market eroded gains, or with excess funds during extended Bull Markets like during the 1980s and 1990s. Additionally, abnormally volatile markets could spook some investors into panic selling."

Financial advisors and many pursuing F.I.R.E. rely on the 4% rule to schedule retirement withdrawals. Rigid adherence to 4% can harm portfolios depending on assets, age, RMD liabilities, and market conditions. Bengen later acknowledged flawed assumptions in his original analysis, noting the rule was based on worst-case 1968 conditions and that SAFEMAX could be higher or different for tax-free versus taxable accounts. Historical S&P 500 gains from 1982–1999 were unusually high and can produce overly optimistic projections. Prolonged bear markets risk depleting portfolios, while extended bull markets can leave retirees with excess funds.

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