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The 4% rule (or is it 4.7% now?) is supposed to be a simple way to figure out how much you can safely withdraw each year, but I’m curious – do HD members really follow it?
While it’s a decent projection, I imagine there are plenty of circumstances where a fixed percentage needs updating – health expenses, market swings, helping family, inflation surprises, or even big life events like moving or starting a new chapter you hadn’t planned for.
For those of you already retired (or closer to it), I’d love to hear if you actually stick to 4%, or is it more of a guideline you adjust as life happens? If you do withdraw more or less, how do you track or budget for potential changes in next year’s withdrawals?
I doubt many people live to the cent on the 4% rule and suspect that underspending rather than overspending is the main risk for those that have built sufficient assets to use it. After all it is a worse case scenario assuming you take all inflation adjustments on income and don’t do naturally conservative things like pare back spending during major market downturns or restrict big ticket discretionary items in the face of high inflation.
I think everyone naturally adjusts the “rule” for their own comfort whether that’s by excluding capital “emergency reserves” from the base or aiming at 3.5% or 3% etc. Of course there may be more bullish types punching for 5% or more – their life, their risk appetite.
But it remains highly useful to all of us who do not have retirement laid on a golden platter for us to contextualise the capital to revenue problem.
No, I am only drawing .75% from my investments. I have been retired for 10 years.
I have a lot of flexibility, if I need to spend more. There’s nothing like not having to worry about money.
I’m not retired yet, but I use the 4% rule-of-thumb for planning; I would never blindly follow it as a method to determine how much to withdraw every year. My plan is to use a more flexible approach, such as Variable Percentage Withdrawal (VPW) or Total Portfolio Allocation and Withdrawal (TPAW).
If I were to retire today, my savings, combined with a small pension and SS, will allow me to live very comfortably on a 3% withdrawal rate. VPW and TPAW both suggest that even if my portfolio were cut in half, I would have enough to meet my needs. It seems that whatever approach one uses, incorporating flexibility to respond to market fluctuations increases likelihood of success.
I’ve been tracking my spending for over 10 years, so I have a very good idea of what my spending ‘floor’ is. Knowing I can spend more gives me confidence to splurge on the things that are important to me: travel and time with family and friends.
I like to think of the 4% thing as a test of my spending plan for the next year. As I have said many times in these discussions, retirement financial planning is all about cash flow. What do I want to do in the next year? Whether it is a bath remodel, a trip around the world, paying for a grandson’s medical school tuition, or anything else, it all takes cash. So the first step is to create a spending plan. It has to include the mundane, the exciting and the potentially unexpected.
The second step is to do a cash flow plan. Where will the cash come from to fund my spending? It could come from existing cash like a savings account, SS or a pension, dividends in my taxable account, RMDs, capital gains from the sale of taxable assets, credit card rewards, gifts from other people etc.
The third step is to forecast the income tax consequences of my cash flow plan. Depending on what the cash flow plan shows, I might need to make adjustments to the spending plan to cover these tax payments, and this might ripple through the cash flow plan needing several iterations so that we can keep the tax collectors happy while I am meeting my goals and paying the minimum amount of tax.
The last step is to look at how the total planned spending including all taxes compares to 4% of the current year expected year end financial assets, plus SS and any pension/annuity payments. If my spending will be significantly less than the 4%+ number, then I need to ask myself if there is anything else I would like to do/buy/gift. I am figuratively leaving money of the table which will increase my assets in the next year if I do not spend more.
Frugal retirees, like most of the Humble Dollar cohort, chronically underspend the 4% and end up with growing retirement savings.
Here’s how some US retirees with $1 million in savings actually end up with $2 million or more — and why that’s a bad thing. Are you getting trapped?
To me, and I expect for many people, the most important thing is to not run out of money. If my portfolio was nearing zero as I neared 100 I would have trouble sleeping at night. If that means my heirs get more, so what. I am not, in fact, scrimping, and my spending will go up over time as my CCRC fees rise, but that’s no reason to change my spending habits just because I have the money.
To me, the Four Percent Rule is similar to the Pirate’s Code, in that they’re not really hard and fast rules; they’re both more like…guidelines (lol). It’s a good place to start when trying to determine a rough expectation of how much lifetime income a portfolio might be capable of generating, and then adjusting your needs, expectations, and enhancements from there.
This is very timely for us. We just started withdrawals this year at age 65 and plan to claim Social Security at 67. I ran some scenarios using ChatGPT to see when RMDs would overtake a 4% withdrawal strategy adjusted annually for inflation (2–5%).
The results were interesting:
With 2% increases, withdrawals never exceed RMDs—RMDs set the pace.
With 3% increases, RMDs surpass withdrawals at age 74.
With 4% increases, that happens around age 80.
I also tested different starting withdrawal rates (3–5%), inflation adjustments (2–5%), and returns (5–9%). The pattern was clear: starting above 4%, raising withdrawals more than 4% annually, and earning less than 7% ROI tends to deplete the portfolio before age 96 in a 30-year plan.
So my simple takeaway is what I call the 4-4-7 rule: start at 4%, increase 4% per year, and aim for at least 7% ROI (from a 60/40 portfolio). In the end, RMDs eventually take over, and the real lever you control is managing ROI with as little risk as possible.
The 4% “rule” is a fictional rule created by the financial advisory/services industry. Bill Bengen published a paper with data (he just published an update) and didn’t ever say it’s a rule for us to follow.
It’s more of a strategy amongst many that you can study for securing a drama free retirement and avoid relying on family or state as you age for your longevity expenses.
We never actually use the 4% rule however, since our RMDs are about 4% and we both have pensions and SS, we have enough without worrying about it.
But as an aside to Dan, in Texas there is a clause in Homeowners Policies, I think it is Exclusion K, that covers termite damage but is only added to the policy for an additional fee and you have to specifically ask for it to be added to your policy. I have not checked other states.
I’m 72 and have been taking approximately 4% from my IRA for a few years. At first I augmented with savings, but started Social Security at 70. I also began a QCD this year for offering to our church, which has put me at closer to 4.25%.
I have an investment account balance that exceeds my IRA balance and I never touch that. If I include that in the ratio, I’m drawing less than 2%.
In the budget vs non-budget discussion, I track all expenses in Quicken. I do not create a monthly scorecard for expenses, but I know how much we spend each month on household expenses, travel, groceries, restaurants, auto fuel/service, taxes, and so forth. I can (and do) make year-by-year or month-by-month comparisons by individual categories, gross spending, etc. and compare income to outgo.
Why do you separate out the IRA? I just consider my portfolio as a whole. It’s all ultimately money…
I too deal with and think differently between brokerage account and IRA. They are taxed differently for one thing and, of course, we are forced to take withdrawals from the IRA.
You’re right, it is all ultimately money, but they just feel different to me.
Kathy – It’s all in my head. I think of the two separately because of how I have structured my will and revocable trust. My wife and I both have children from prior marriages, and I’m providing for all very specifically in my trust verbiage. As a result, I think of those two accounts in very specific/distinct ways.
That makes sense. I have the same beneficiaries/transfer on death recipients on both taxable and non-taxable accounts, aside from a small Roth IRA.
I still personally like Jonathan’s keep it simple style where on January 1 of any given year, you take 5% that year. If you start with $1M you’re of course taking $50K a year. The next year if your investment account is $800K, you’re adjusting your withdrawal to $40K a year.
I would withdraw the same amount as last year and forgo the inflation adjustment until the market recovers. Of course, this assumes one has a healthy dose of treasuries as buffer assets for emergencies.
How can you plan your life not knowing what you will have to live on the next year?
We have been retired for 6 years and living off our portfolio until we turn 70 and claim Social Security. We are somewhat frugal so no need to limit our spending. We do what we want to do. This month we are continuously reaching all time highs in our portfolio so I don’t really care what our percent of portfolio being expended is. Quarterly I do calculate our portfolio total and net worth to keep an eye on how we’re doing. Also once we claim Social Security in two years, that source of income will meet all, or the vast majority of our expenses so probably no need to further tap portfolio until RMDs kick in.
I would say that 4% is a target I hope never to exceed. When I moved to my CCRC two years ago I began spending more than my pension plus Social Security for the first time since starting my own SS, but it’s currently less than 1%. I expect the percentage to go up next year if I travel, and it will go up every year as my monthly fees go up. My asset allocation is only 50% stocks, and I am currently spending from what was originally my emergency fund. I also have a five year CD ladder. At 78, I have a 22 year time horizon. In another seven years I may stop worrying about it altogether.
I begin by using the IRS RMD tables and go from there. About 25% of my personal retirement accounts are in a Roth, so that is excluded. Since 2018 I’ve done the annual RMD calculation and rounded it upwards.
My actual withdrawals as a percentage of all of my retirement accounts have been about 2-3% each year. In 2025 it was 2.75%. However, in 2023 I took a large withdrawal from my Roth to handle medical related expenses.
One goal is to minimize the tax bite. I’ve considered taking more than is necessary from my traditional IRA and 401(k) each year, spreading the tax bill over a period of years while keeping it as low as possible. This could be via in-kind transfers to a brokerage account.
I periodically run a Monte Carlo simulation and compare it to Quicken’s “Lifetime Planner” tool. I’m able to customize projected returns, taxes, inflation and projected expenses based upon current and recent realities.
It is implied that I could take 65% more than I currently am each year and the remainder would “fund all of my lifetime goals”. That’s my true objective. While I have no formal plan to gift after my death, we do have a list of 20 beneficiaries (individuals and organizations) in our wills.
Don’t pay attention to Mr Bengen’s Rule. SS + RMDs cover everything. Large slush fund for backup.
Depends on your actual necessary expenses.
I’m not comfortable with the 4% strategy for some of the very reasons you cite.
About 5 years ago, a tax client presented medical expenses that included $30,000 for dental procedures. There is no dental coverage that I’m aware of that would have insured that cost.
This happened to me. Damage to a home caused by insects or vermin, termites in my case. As far as I know there isn’t insurance for that peril either. Luckily I was young and able and had many friends in the building trades, otherwise the damage may have been in the mid 5 figure range.
These are things to consider when building an emergency fund. There are more things to think about than simply covering ordinary living expenses for a period of time.
Dan, how is that different than working for a salary? During working years we have a set income stream. If a $30,000 bill pops up it is unlikely we can handle it out of the pay.
The idea is to have an emergency fund of some type built up over the years and maintained if used.
I don’t see it any different in retirement. I couldn’t come up with $30,000 out of my pension, but we have a IRA and a brokerage account where I keep cash as a backup.
Right now we are replacing appliances. Seems like we will hit about $10,000 in total. That’s coming from reserves we maintain for such events.
If I was living from an investment balance, I would have funds that were not part of that account as a backup.
The New York Times had a quiz recently on the costs of home ownership. They figure you can replace your washer, dryer and fridge for well under $4,000.
My IRA acts as my emergency fund since my nontaxable savings are minimal. I needed to put the maximum savings into my 403b while working. We’ll have a good sized nontaxable savings fund when we sell our house in the next year and move to our condo in Florida, which has no mortgage and, interestingly, reasonable HOA fees and insurance.
Dick, I think I’m saying the same thing. For example, if I have a $1 million portfolio, I would not take 4%, or $40K as a distribution. I’d carve out an amount from that million, say $100K, for emergencies. I would then base my distributions on the remaining $900K.
Of course, if your guaranteed sources of income (pension and SS) cover all or most of your living expenses, (as ours do), the conversation probably becomes moot.
There certainly is termite insurance available, at least where I live. I carried it every year I owned a house in NC and used it once. You pay extra every few years to have the firm come out and renew the protection. The other years they do an inspection and fix any damage. Of course, this was nothing I would have known about in the UK, and maybe it is only prevalent in the south in the US. I don’t remember, but it may have been a requirement for my mortgage, along with title insurance.
Update: A quick check suggests that termite inspection may be required, especially for FHA and VA loans, but not insurance. However, termites are common in NC and I wouldn’t be surprised by such a requirement.
I have a similar arrangement with a pest company. They come every few months and inspect inside and out and treat as necessary. They also apply preventative treatments like around the outside foundation. We have used the same company for 30 years.
Ours does not fix damage, but has prevented it all these years.
Kathy, I think the termite insurance you refer to is offered by an exterminator company. That guarantee is only as good as the company offering it. Someone please correct me if I’m mistaken, at least here in Ohio, I don’t believe a rider for this damage is available through an actual property and casualty insurance company.
Well, the company my builder chose in 1989 was still in business when I sold the house in 2022. I used it for quarterly service as well as annual termite inspections and (I think) five yearly treatment. If a particular company went out of business you would just pick another. The treatment would probably have to be redone. I can’t imagine any outfit would offer insurance without knowing the treatment was performed correctly.
In Ohio, the VA and FHA require similar inspections, and corrective measures if damage and/or colonies are discovered. Buyers are not required to enter into a contract with an exterminator, though it is money well spent to do so in my opinion. In northwest Ohio we may have different termites than you. We have Eastern subterranean termites that live underground and build mud tunnels to reach their supper. These monsters can go undiscovered until the house begins to fall down; that’s the reason many people are caught off guard. Termites in the south live above ground and are dealt with differently. It’s my understanding that NC, being in between N and S, may have both types.
A little research says there are 50 varieties of termites in the US, nine of which are “economically significant”. NC has varieties of Eastern Subterranean Termites and Formosan Subterranean Termites. Details for those interested here.
I’m age 63, still working part-time and not yet withdrawing money from savings. The Bengen guideline is still influencing my thinking, however. For example, if I wanted or needed additional money for some purpose, the guideline gives me a “starting point”, as Mark Crothers writes. It helps me understand how much my portfolio will bear, an outside limit.
And, knowing my tendency toward mental accounting, I may follow the habit Dick describes below, of building a “reserve” of unused money–even if it’s not yet withdrawn–to spend, while still staying in the safe zone.
These are just musings, not yet put into practice. Just my mental warm-up for game day.
I don’t use withdrawals from assets, but I think you miss the point of the strategy. 4% (or a percent you choose) of your investments is intended to be your income and thus that income – plus perhaps and emergency fund) is intended to cover all your living expenses that you have mentioned. You can’t take say 4% and then take an extra $5,000 from assets to help a relative and hope the rule will work over time. It may not.
On the other hand if you take a steady percentage but don’t use it all, you can build up a reserve for the extras without endangering your overall strategy. Or, perhaps one year you skip the inflation adjustment.
We live on a pension and SS. Every penny spent planned or otherwise comes from those two sources and unlike with the 4% rule the bulk of our income is not adjusted for inflation.
Rob Berger, who has an excellent YouTube channel with 276k subscribers, recently said that the only person he has ever met who claims to have religiously followed the 4% (4.7%) rule for many years is Bill Bengen.
What do people living on accumulated assets mostly do for a steady income?
In addition to a monthly allowance less than 4% of my portfolio, We receive SS, interest income from loans made to businesses, a small amount from my parents family partnerships, a couple real estate distributions, and a odds and ends. After the move into a CCRC early next year, we expect some sort of adjustment will be in order.
A huge gift from my children will be spent on apartment upgrades and furnishings. I hope they don’t read HD.
Retired at 56. Now 80, I don’t think we will live another 30 years , but we still continuously focus on living healthy. LTCI saved us from financial ruin.
Retired 8 years with no pension, and still several years from SS. I use 4% as a general guideline for overall withdrawals from our portfolio. At this time the withdrawals are dividends from our taxable account, TIRA withdrawals, and some I bond interest from lower yielding bonds that I’m flipping into newer vintage I bonds. Actual overall withdrawal rate has ranged from 2.5-3.5%, though the withdrawal rate from the TIRAs is around 6%, which we are trying to shrink a bit before RMDs kick in.
Nope, we do not use the 4% “rule”. We don’t sell core portfolio assets for income, either. We use a different strategy. We do track income used as a percentage of portfolio.
This is the first year we have been drawing from retirement accounts. We did take 4%, but just from tIRA. None from Roth or taxable. Agree with what Mark said about it being a flexible starting point. We will re-evaluate at the end of the year, the 4% so far has been more than we spent, but we didn’t take a big trip this year. We also spent some from HSA for medical things. Chris
I view the 4% SWR not as a strict mandate, but as friendly advice. It’s a flexible starting point, like a dependable launchpad, that offers a range of choices beyond its basic suggestion.
Doesn’t 4% depend on 4% of what amount relative to income needs? All 4% consistently means is in theory you won’t run out of money over 30 years, it doesn’t guarantee you can live on what 4% or any percent generates.
In theory, I personally wouldn’t be comfortable if I needed 4% of my resources to fund yearly spending. To me, I need the figure as a guide to the absolute minimum required. Like an elite athlete with a low body fat percentage, I wanted to waddle into retirement with a serious telling-off from the doctor because my body fat percentage is too high! But at least I won’t starve during a famine. If everything goes well, I can trim some off and spend, spend, spend.