'Inflation is the big wild card': Even inventor Bill Bengen is revisiting the 4% rule — is it still the key to making money last in retirement?

'Inflation is the big wild card': Even inventor Bill Bengen is revisiting the 4% rule — is it still the key to making money last in retirement?
'Inflation is the big wild card': Even inventor Bill Bengen is revisiting the 4% rule — is it still the key to making money last in retirement?

We’re often told we need to save as much as we can over 30 or 40 years of work to carry ourselves through retirement.

But once we reach that milestone, how do we ensure our savings won’t run out before we die?

It’s a question that challenges even the brightest financial minds. And while the industry has followed what’s known as the “4% rule” for decades now, some argue it’s not the simple solution its proponents have sold it as.

In 2021, Morningstar, a financial services company, published a research paper calling the 4% rule “no longer feasible,” proposing a 3.3% withdrawal rate would be more realistic. But in December 2022, those same researchers updated their rate to 3.8%.


It appears reports of the rule’s death may have been greatly exaggerated. But if the experts — and even the creator of this rule itself — can’t settle on whether it still rules supreme as a withdrawal strategy, what’s a retiree to do?

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The history of this ‘rule’

In 1994, rookie financial adviser Bill Bengen was looking for a rule of thumb to give his clients on how much they could safely withdraw from their assets each year. He found that 4% — adjusted based on inflation — was the magic number.

Bengen had reviewed several decades worth of statistics on retirement and stock and bond returns, asking himself if retirement portfolios from the time he studied could theoretically last up to 50 years.

He found that the answer was generally yes, if retirees withdrew no more than 4% of their assets per year. And in any case they could reasonably expect their funds to last 30 years.

Bengen published his findings in a paper that year, and before long, his theory became an industry-wide rule.

Where the rule stands nearly 30 years later

For two decades, the 4% rule served as the rule of thumb for financial planners and retirees in determining their withdrawal rate.

Part of what made the rule so popular is it was straightforward to understand and follow. And for those who worried about running out of money during retirement, sticking to a rule provided some structure and peace of mind.

Read more: Your cash is trash: Here are 4 simple ways(to protect your money against white-hot inflation (without being a stock market genius)

However, the major issue with this rule is that it’s unrealistically rigid for most people.

Moshe Arye Milevsky, a finance professor at York University’s Schulich School of Business in Toronto, Canada, explained his distaste for the rule in a presentation for the Financial Planning Association of Canada in the fall of 2021.

Milevsky argues that not only does its success require strictly following the principle every year, it doesn’t take into account any lifestyle or market changes outside of inflation. When someone commits to the rule for their retirement, they’re locking themselves into a strategy for 30 years that requires them to stay the course no matter what.

What’s the alternative, then?

A better approach, Milevsky says, would respond to multiple variables, like a retiree’s age, where the retirement income is saved or invested and personal goals for retirement.

And keep in mind that the strategy is based on the market’s past performance, which isn’t a predictor of future performance.

Even Bengen himself has been compelled to revisit and update the rule a few times over the course of the last three decades. That’s because his original research only included two asset classes: Treasury bonds and large-cap stocks. Now, with a third class, small-cap stocks, he believes that 4.7% would be a safe withdrawal.

In an appearance on the Bogleheads Live podcast in December, Bengen says he’s adjusted his own withdrawal strategy rate to 4.7%. But he went on to say that with sky-high inflation factored in, an even more conservative approach might be safer.

“My 4% rule was actually based upon a worst-case situation. An investor who retired in October of 1968 who ran into just a terrible, perfect storm of bad stock market results and very high inflation, which forces withdrawals up every year,” he explained.

“Are we in a similar period beginning with this year with very high inflation and potentially low stock market returns? Entering something even worse? I don't know, unfortunately. And we won't know for quite a few years.”

Until then, Bengen believes the situation is serious enough to warrant a more conservative approach for now. “Perhaps investors might consider taking 4.5% at this time when retiring until the smoke clears and we get a sense of where inflation is going,” Bengen said. “Inflation is the big wild card in this environment.”

And in the meantime, most retirees would be best served by consulting with their own financial adviser about the withdrawal strategy that best suits their financial situation.

— With files from Samantha Emann

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.