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  • Writer's pictureMark Fonville, CFP®

Why You Need More Than the 4% Rule in Retirement

Why You Need More Than the 4% Rule in retirement

Retirement planning is more important than ever, but also more challenging. With high inflation rates over the past two years, most retirees worry about outliving their savings. This risk is very real and requires careful consideration to ensure a comfortable retirement.

The unpredictability of markets and the economy makes it impossible to time events like daily market fluctuations or the start of retirement during a bull or bear market. Nevertheless, we can regulate our own behavior and stay focused by being disciplined.

Thus, a reliable financial plan that can adapt to unforeseen circumstances, coupled with expert financial advice, has been proven to be the most effective approach in reducing retirement risks. Though there is no guaranteed success, historical data supports this approach.

How can retirees continue to maintain peace of mind and their quality of life in today's environment?

Retirement and investment planning can be complex, but two key concepts worth understanding are the "4% rule" and "sequence of returns risk."

The 4% rule is a tool that aims to answer the question of how much money you can withdraw annually from your retirement portfolio without depleting your savings. Its creator, William Bengen, found that a 4% withdrawal rate historically served as a safe threshold for retirees to sustain their portfolios for a 30-year span, accounting for inflation.

For this reason, this is also sometimes referred to as the "SAFEMAX rate."

Maximum Withdrawal Rates in Retirement Are Different Throughout History

You may be wondering if the 4% withdrawal rule is still viable today.

Maximum withdrawal rates in retirement

Our accompanying chart above shows safe withdrawal rates based on historical 30-year periods and inflation rates for a 60/40 stock/bond portfolio, as well as estimates for recent years.

The calculations reveal that the maximum withdrawal rate fell to 4% only once in the 1960s. In hindsight and on average, retirees were able to withdraw 6.9% annually without depleting funds.

Keep in mind that the safe withdrawal rate can vary significantly yearly due to market returns fluctuations. Overall, these findings give retirees confidence in steady withdrawal rates.

When it comes to investing and the 4% rule, it's important to keep a few things in mind.

  • If you want to make the most of your investments over the long-term, you need to stick to your investment plan. Avoid overreacting to short-term market fluctuations, as this can negatively impact your retirement withdrawal rates later on.

  • It's essential to consider your individual risk tolerance and portfolio construction, which can vary greatly between retirees. For many people, a 60/40 portfolio may be too aggressive, particularly in later life.

Sequence of Return Risk Can Change The Value of Your Portfolio in Retirement

Ultimately, investing is about more than just market events – it's also about our own behavior and approach to risk.

sequence of return risk in retirement

Using simple rules of thumb for retirement savings may not fully account for the timing of bear and bull markets, which can significantly impact the value of your portfolio and withdrawals.

For instance, withdrawing funds early in retirement when the market is down amounts to "selling low," leaving investors with fewer opportunities to benefit from future bull markets and compound interest.

Conversely, withdrawing when the market is up ("selling high") enables your portfolio to maintain a higher value and compound faster, providing a safety net during inevitable downturns. As such, it’s important to tread carefully with any general retirement saving guidelines. Investors cannot pick their starting position in a bull or bear market. Instead, they must adapt to the cards they are dealt.

Although the 4% rule is a decent starting point, it may not be enough to effectively manage spending and risks in retirement.

To balance these factors, retirees should seek financial guidance and develop a plan that adapts to their changing needs and circumstances. It's essential to consider various factors when determining withdrawal rates, and having a sensitive financial plan is crucial for successful retirement planning.

Withdrawal Rates and Life Expectancy

Did you know that simple financial rules of thumb don't take into account increasing life expectancies?

US life expectancy in retirement

For example, a 40-year-old man today has a life expectancy of 79 years, while the 90th percentile could live beyond their 90s. For those who are 65, the average life expectancy for men and women is 83 and 86, respectively. However, the 90th percentile could live to 94 and 97. This difference of a decade or more can have a significant impact on investment portfolios and financial plans, emphasizing the need to prepare for a retirement that could last 20 to 40 years.

Longevity risk is the possibility of living longer than anticipated, and it's a significant concern for most people. The risk is particularly harsh because it's worse to run out of money than to leave some behind for loved ones, charities, and others. Therefore, life expectancy is a critical factor in financial planning. Professional financial advice can help people manage their longevity risk, making it even more critical for everyone.


Although the 4% rule is a helpful tool for retirees, it does not provide a complete solution. To achieve financial security in today's volatile market, investors must adhere to a long-term investment strategy and financial plan. It is essential to stay focused and committed to your goals in order to overcome the obstacles presented by today's economic climate.

Do you want a personalized plan for retirement to help make your money last? Contact us today for a free retirement assessment!



4% Rule Charts
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Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.


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