The iconic 4% rule for retirement spending, introduced by financial advisor Bill Bengen in 1994, has been revised. Bengen now says retirees can safely spend 4.7% of their savings in the first year of retirement.
The rule, which gained viral popularity for simplifying the complex challenge of funding a retirement, has long been praised for its simplicity but criticized for being too conservative. The update reflects stronger stock market performance and Bengen’s shift from a simple 50-50 stock and bond portfolio to a more diversified mix: 55% stocks, 40% bonds, and 5% cash. He now uses seven asset classes, including international stocks and Treasury bills.
“The primary reason for the change is that my research has gotten more sophisticated,” Bengen told USA TODAY.
The original rule holds that retirees withdraw 4% of savings in the first year, adjusting that dollar amount for inflation each subsequent year. For a retiree with $500,000, that means $20,000 in year one. Under the new 4.7% rule, that same retiree could spend $23,500.
Yet retirement experts caution the rule remains a starting point, not a rigid formula. Spending needs change over a 20- to 30-year retirement, influenced by market returns, inflation, and life events. “The reality is, people really have to look at the true price of what it costs to be them in retirement,” said Caleb Silver of Investopedia.
A major concern: the rule works best for the affluent. The median household retirement savings for Americans aged 55-65 is about $185,000, yielding just $7,400 a year at the old rate. “There are a lot of families out there who have no retirement savings at all,” said Amy Arnott of Morningstar.