The 4% withdrawal rate is dead
I’m kind of sick of everyone blindly following the 4% rule.
Everyone treats this 4% like gospel.
This mistake is costing so many people years that you’ll never get back.
Bill Bengen, the financial planner who popularized the 4% rule in the 1990s, has updated his own research and now says a withdrawal rate closer to 4.7% and in some interviews, he’s suggested 5%+ could work depending on market conditions and portfolio construction.
That change might sounds small.
🚨 Moving from 4% to 5% cuts the amount of money you need to retire by roughly 20%!
A person or couple that needs to spend $100,000 per year would need:
💰 $2.5 million using the classic 4% rule
💸 $2 million using a 5% withdrawal rate
That’s a $500,000 difference!!
That difference alone could shave YEARS off you and your partners working life.
And, the second thing is that the original 4% rule was NEVER really designed for the type of people who follow it the most dogmatically 😭
Bengen’s research was based around a traditional retirement:
👴 retiring around age 65
⏳ withdrawing for roughly 30 years
🚫 never earning another dollar again
📊 maintaining inflation-adjusted withdrawals no matter what markets did
That it very different from us, who are smart and agressive early FIRE retirees.
Also here is the other thing that everyone misses.
Everyone always cries about “the lost decade” being the reason to stick to 4%
And Yes - the biggest danger in retirement isn’t running out of money at age 90 it’s getting smashed by terrible markets in your first 5 years after retiring.
BUT if you make it through that early window, the S&P 500 does around 10.1% annually over the long term, meaning a $2 million portfolio growing at that average rate would become roughly $3.2 million after 5 years before withdrawals.
That’s why flexibility matters so much for younger retirees.
If markets get ugly early on.
💵 you can make some side income
💰 reduce spending
🏝️ you can run geographical arbitrage
The reality is that most younger retirees are not robots blindly pulling the same inflation-adjusted amount every year while refusing to adapt if the markets shit the bed.
So building your entire exit strategy around the absolute worst historical scenario means spending your best years working for money you never actually needed and might never spend!
🔥 Even Bengen himself has warned about this. He said many retirees end up dying with large portfolios and regretting not spending more earlier in life.
So just to clarify:
The “4% rule” is an outdated, conservative rule of thumb based on a very specific type of retiree living in a very specific scenario for an older person retiring who doesn’t have the time or flexibility to make it back.
And for flexible younger FIRE investors with optionality, and decades ahead of them, the number can be meaningfully higher!
What % number are you guys looking at?
