The 4% Rule 20 Years Later

by Robert DeVries

If you’re like most people, you will work for 40+ years; each year trying to decide about how much to save for retirement by delaying consumption. However, how much to spend in retirement might be an even harder question for you.

Many people rely on an old investment adage from over 20 years ago called the “4% rule”. Bill Bengen, an advisor from San Diego, California, first postulated this rule. The rule first stated that you could withdraw for spending 4% of your portfolio invested in 50% equities and 50% bonds each year, creating an income stream that would last 30 years. The expectation was that a 50/50 portfolio would provide an 8% return.

But times have changed! Interest rates for the past decade have been at historical lows, pulling down the overall return expectation for many portfolios.

The usefulness of this rule is being rethought and covered in the financial press. In a December 2013 article, USA Today said that 3% is the new 4% (or that you could withdraw only 3% of your portfolio to create the Bengen stream of income).  Barron’s declared it time to rethink the 4% rule, and an article in the NY Times from 2013 (New Math for Retirees and the 4% Withdrawal Rule) suggested using deferred or immediate annuities to lock in a rate of return.

Are annuities for you? Or can you self-insure? If you are creating your own income stream through sales of securities, what is the right withdrawal rate? Some retirees have plenty of financial capital to “self-insure” the risk of running out of money, but how much is enough?

Determining the right withdrawal rate is one of the most important decisions you will make in your financial life, so working with an independent, trusted financial advisor to help you with the consumption phase of your life can be the critical step to make sure that your 40+ years of saving were all worthwhile.

If you would like help with this important decision, and would like to schedule a complimentary consultation, please call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773 or visit us at to schedule an appointment!