For more than 30 years, the so-called 4 percent rule — a tidy formula to help retirees figure out how much they can withdraw from their portfolios each year without running out of money — has loomed large in retirement planning circles.
But William Bengen, the now 77-year-old retired fee-only financial planner who introduced the concept in a 1994 Journal of Financial Planning paper, says his work was never meant to be a cookie-cutter golden rule.
“I think the most important facet people overlook is that the 4 percent rule — or the newer version of the 4.7 percent rule — is the worst-case scenario,” says Bengen. “It’s really designed for only the most conservative person to use in retirement planning.”
Bengen’s new book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, released Aug. 5, builds on his original research along with decades of market data, more asset classes and lessons from real-world retirees.
The takeaway? The 4 percent figure was always meant to be the floor — and many people can safely spend much more in retirement.
Bengen’s 1994 research used historical market data to determine a “safe withdrawal rate” — the amount retirees could take from a portfolio each year, adjusted for inflation, without depleting it over a 30-year period.
The original math behind the 4 percent rule came out to 4.15 percent, but it was rounded down in a publication, and the round number stuck.
Bengen’s research assumed a portfolio split evenly between U.S. large-cap stocks and intermediate-term government bonds, and the withdrawal schedule worked much like Social Security’s cost-of-living adjustment. You take a set percentage the first year, then give yourself an inflation bump each year after.
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Bengen later revised the figure to 4.5 percent in 2006. Now, based on broader asset allocation models, he’s identified 4.7 percent as the worst-case starting point — what he refers to as the “SAFEMAX” in his book.
That rate would have kept a 1968 retiree afloat for 30 years, despite multiple bear markets early in retirement and long periods of high inflation in the 1970s. Out of roughly 400 historical retirement scenarios he’s modeled, only one had to withdraw that little to make it 30 years.
“The average [safe withdrawal rate] over the last 100 years, believe it or not, is 7 percent,” says Bengen.
Bengen says the original number was never meant to be the default for everyone. Today, he says most retirees can comfortably take 5.25 to 5.5 percent out without worrying about running out of money.
“If you take less, the odds are very high that you’re going to end up with a big pile of money when you retire and a lot of regrets for not having spent more during retirement,” he says.
In his own life, Bengen started retirement in 2013 and used a 4.5 percent withdrawal rate. But over time, he has bumped up that rate and withdrawn more as markets performed well.
Bengen recommends taking evenly spaced withdrawals throughout the year, which smooths income and avoids market-timing risks.
But for retirees with other income sources, deferring portfolio withdrawals until the end of the year — especially from tax-deferred accounts — can keep money compounding tax-free and potentially stretch the life of a portfolio.
In his latest book, Bengen doesn’t simply tweak the original number — he reframes how retirees should think about the whole process. The 4 percent rule was never intended to be a “set it and forget it” magic formula. Instead, he wants people to understand that a safe withdrawal rate depends on timing, market conditions, inflation and personal decisions.
What follows are the core lessons from his decades of research and experience — starting with the biggest threats to a retirement portfolio, the portfolio mix he thinks works best today, and why budgeting and flexibility are just as important as any withdrawal percentage.
Bear markets may cause anxiety, but history shows they tend to recover in a year or two. Inflation, on the other hand, quietly chips away at the value of every dollar you withdraw, forcing you to spend more in order to maintain the same standard of living. If inflation stays high for years, the damage can be permanent.
Bengen calls inflation “probably the most important factor of all” when determining your retirement withdrawal strategy because it attacks purchasing power relentlessly. A brief spike can often be absorbed, but persistent inflation — like in the 1970s — demands quick action.
“You need to make adjustments immediately to your spending to get you through the storm and hope it doesn’t last too long,” says Bengen.
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Bengen’s original work relied on a sample portfolio with a mix of U.S. large-cap stocks and intermediate-term government bonds. That’s it.
In his new model portfolio, he expanded to include U.S. large-cap stocks, U.S. mid-cap stocks, U.S. small-cap stocks, U.S. micro-cap stocks, international stocks, intermediate-term U.S. government bonds and U.S. Treasury bills.
“Each of the asset classes has its own cycle,” says Bengen. “If they all do it at different times, it’s going to provide a boost to your portfolio because when one investment is not doing so well, another one might be picking up for it.”
He recommends annual rebalancing and even sees a small role for alternative assets like Bitcoin — just 1 percent in his own portfolio — as a diversifier. He also sees value in using simple annuities to steady retirement income.
“Annuities can help the withdrawal,” he says. “I think they add an element of stability and move some of the risk of the stock market, which is a concern for folks.”
Bengen also challenges the traditional advice to scale back on stocks before retirement. His preference is to stay 100 percent invested in equities until five years before retirement, then gradually shift to your target allocation.
Doing so helps maximize your portfolio’s growth potential and the benefits of compounding during the final high-earning years leading up to retirement. Delaying the shift to safer assets also shortens the lower-return period while still giving you time to reduce risk before withdrawals begin.
Some academics have criticized the 4 percent rule for not factoring in large, irregular costs like major home repairs, medical bills or long-term care.
Researchers and policy groups show out-of-pocket health costs can be heavy near the end of life, and needing long-term care is both likely and difficult to insure against for most households.
Bengen agrees these costs are real — but says his withdrawal strategy was never designed to dictate how retirees spend.
“I’m looking primarily at the withdrawal side — taking money out — and not what happens to the money afterward,” he says.
Retirees should build a separate, detailed budget that includes planned big-ticket expenses to avoid unpleasant surprises.
One way to plan for late-life out-of-pocket spending on health care is to pre-fund a medical reserve. Price premiums, deductibles and typical out-of-pocket costs under your Medicare plan, then create a dedicated reserve in T-bills or a short ladder of TIPS that mature in the years you expect higher costs.
Gradually contributing to a high-yield savings account specifically earmarked for health care costs is another option, sweeping a portion of the money you withdraw each year into this special account.
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Bengen believes a set-it-and-forget-it approach is dangerous. Instead, retirees should revisit their withdrawal strategy every couple of years to see if they’re ahead or behind their projected target.
If the portfolio is growing faster than expected, they can spend more. If it’s lagging, they may need to cut back temporarily.
However, he warns against slashing withdrawals too much in a typical bear market, since recoveries usually restore the portfolio’s trajectory pretty quickly. But in times of sustained inflation, quick cuts to spending are essential.
In his book, Bengen suggests viewing withdrawal rate research as a record of what worked historically, not a prophecy for the future. Echoing Warren Buffett, Bengen says it’s better to be “approximately correct than precisely wrong” when it comes to retirement planning.
Bengen likens his updated method to following a cookbook: You start with your specific “ingredients” — such as whether your accounts are taxable or tax-deferred, whether you want to leave money to heirs and when you plan to claim Social Security.
Here are the eight ingredients Bengen outlines in his book:
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Withdrawal scheme
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Planning horizon (years you plan to spend in retirement)
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Taxable versus non-taxable portfolio
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Leaving a legacy to heirs
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Asset allocation
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Portfolio rebalancing frequency
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Striving for above-market returns
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Withdrawal timing
He stresses that two ingredients are beyond your control — the valuation of the stock market when you retire and the prevailing inflation rate — but the rest, from your asset allocation to how frequently you rebalance your portfolio, are completely in your hands.
“They shouldn’t be focused on a single number going in,” he says. “It’s a process, and people probably shouldn’t skip over any of the steps.”
In fact, he says the safe withdrawal rate is “actually the last thing you come up with” after analyzing all of these variables.
His point: The 4 percent rule was never meant to be the star of the show. The number is just the garnish on top.
As Bengen puts it: “I list all the ingredients of your plan, how they should be mixed together, how long to cook them, and then when you take it out of the oven, how to enjoy it.”
For retirees willing to think beyond a single percentage, that recipe can lead to a retirement that’s both financially sustainable and emotionally satisfying.
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