Is the 4% Retirement Rule Changing For Baby Boomers?

"If you are a retired Baby Boomer, or a Baby Boomer who has done any retirement planning at all, you are almost certainly familiar with the 4% rule. This rule helps you define a safe withdrawal rate. If you follow it, you can withdraw 4% of your retirement account balance in the first year of retirement. Each year thereafter, you can increase withdrawals based on inflation. The goal of following this rule is for your retirement money to last for at least 30 years."

"While the 4% rule makes it easy to decide how much to withdraw, it is also not a rule you can necessarily count on. In fact, experts from Morningstar have published an updated, revised recommendation this year. Based on Morningstar's recent retirement income research, Morningstar experts now recommend that you withdraw slightly less. Instead of a 4% withdrawal rate being the safe starting point for retirees, the new recommendation is that 3.9% is the safe withdrawal rate."

Traditional retirement guidance allowed a 4% initial withdrawal with annual inflation adjustments to aim for money lasting about 30 years. Updated assumptions about inflation and future asset-class returns prompted lowering the safe starting withdrawal rate to 3.9%, which provides approximately a 90% probability of having money remaining after 30 years while maintaining inflation-adjusted spending. Portfolios with equity allocations between 30% and 50% can generally sustain this rate. The financial impact is modest — for each $100,000, the change lowers the first-year withdrawal from $4,000 to $3,900 — but reflects sensitivity to return and inflation assumptions.

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