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I have seen countless articles on the 4% rule, which essentially states that withdrawing 4% annually from a retirement portfolio (adjusted for inflation) provides a high probability that funds will last for at least 30 years. Correct?
But I have never encountered a 4% article that factors in the reality that a great number of us enter a presumptive retirement of 30 years with a spouse or partner.
I assume a couple likely needs less than 2x the portfolio of a single person. But also assume the couple needs more than 1x, unless you truly believe ‘two can live as cheaply as one.’
So where is that number? 1.25x of a single person? 1.5x? 1.75x?
Like most retirement problems, there is likely no defined solution to this complex problem. You can develop a framework around questions such as how different in age are the two spouses? Is the male or female the elder spouse (or are they the same gender)? How old are you now, and what is each spouse’s life expectency. Can you adjust your plan (spending, investment profile) as the years pass and your life expectancy changes? Assuming you expect one spouse to die sooner, how long do you need to plan for the single surviving spouse? Does the surviving spouse spend as much as the late spouse?
With all the moving parts, you really have to build a plan that can withstand the unexpected as well as the expected but not realized.
The 4% rule is just a number, to use to get to what is right for you, a guide to get you thinking. I approached it differently. I said I want to have a nest egg large enough to live to be 100, and in that way I was very confident I would not run out of money. What you really need to do is calculate what you spend monthly and then build a next egg to cover that, and I used 2.5% for inflation. If that is too complicated, which in my estimation it would be for many, then the 4% rule can work as a guide to a nominal amount for your next egg and retirement, keep it simple is OK.
Certainly retirement planning is different for a couple than a single. That said, I also don’t think the 4% rule was based on single person’s portfolio but rather a pot of money for a household regardless of size. Generalized rules like the 4% rule of thumb might be useful for back of the napkin SWAGs as a starting point but retirement planning is different for every household and there are many potential variables.
I found the responses to John’s questions to be interesting and surprising in the variations of people’s interpretation of what the 4% rule of thumb means to them. For me, it’s a generalization that predicts that if you draw down 4% (or less) from your portfolio annually, it SHOULD last 30 years. It doesn’t have any bearing on what your actual household income needs would be. To that end, I created a simple Excel spreadsheet several years ago that captures all (net) dollars coming into the household and all dollars going out monthly by category. It’s not a budget per se in that we don’t set limits, but it does show our actual income needs now. And I can use it to guesstimate for the future when we might go from a couple to a single and our income sources would change dramatically through the loss of a pension thus requiring a larger draw on our investments. Interesting to us was the realization that as frugal as we thought we were, our actual “spend” was about $20k more than we thought initially. That was an eye opener!
I guess what is interesting is how $20,000 could be being spent and not realized. Net income less savings equals spending. Where could $20,000 be hiding unless in credit card debt?
It wasn’t hiding – and we have never carried a balance forward on a credit card. What I was saying is that when we made a guess at what our annual spend was before we actually started using a tracker, that number was way off. I think we thought it was less than it actually was because we were still saving an amount that we felt comfortable with and I was still working. That all changed when my husband was diagnosed with stage 4 cancer and it became imperative to no longer be casual about the numbers. My point was just that perception and reality can sometimes be far apart. And that I’m quite fond of the spreadsheet I use so that I’m never surprised again.
The 4% rule you’re talking about is different than the original 4% rule. Your rule is generally called the Flexible 4% Rule as it calls on the household to reduce spending (the original does not, it starts at the 4% and then makes adjustments for inflation).
Your rule can’t create a 0 portfolio because it’s a flexible withdrawal, it could create years where the withdrawal doesn’t meet essential expenses. That’s where a budget and projected cash flows become really important.
Thank you for your reply. I didn’t realize there were different “4% rules.” I’ll need to do a little more research to understand that better. I personally don’t really apply the “rule” to our plans either way. It’s just an interesting concept. I focus on knowing what our current financial needs are and the sources to meet them both now and in planning for future changes. In retrospect, probably others had already said that in a clearer way. 🙂
Personally I think what you suggest makes a lot more sense than the idea of adjusting for inflation. When people see their portfolio grow they want the capacity to spend more.
Also people seem to like rules, esp if it calls for fairly simple calculations. The older I get the more I think rules are a good starting point, but that we never get away from that annual budget and review process.
Jan, our minds must work the same way, because I do the exact same thing with a spreadsheet I created. I make a habit of tracking expenses and comparing intake and output each month. If nothing else, it makes me mindful of our spending and aware of our cushion and how long it could last.
I also do the same thing. If I didn’t, I don’t think I’d have a good idea about how much we’re spending. I also compare our annual spending to my portfolio to see how it aligns with the 4% “rule.” So far, five years into retirement, we have been comfortably below 4%–which makes me think we are living more frugally than we need to (but old habits die hard).
Well said, Fran. Thank you. I find the process calming in the face of an uncertain future.
The calculation itself has no bearing, but unless you factor those needs, the 4% or any withdrawal strategy has no value at all.
Say your target income after SS is $50,000 a year. To meet that goal the 4% strategy says you need a nest egg of $1,250,000. The 4% rule supports your income needs, it does not determine them and should you increase those needs all bets are off.
Once you settle on the income you want, the rest is quite simple. Do you have enough saved so that 4% of it does the job, hopefully for 30 years assuming, of course all your funds are not in a money market account.
I Totally agree. And that’s where my spreadsheets comes in to play.
What I’ve read is that using 4% as the initial withdrawal rate should allow a diversified portfolio to suffice for 30 years with a high probability. Thereafter, the annual withdrawal rate is adjusted for inflation. Christine Benz writes about this from time to time, adding current research, etc. Here is her latest article. https://www.morningstar.com/retirement/5-ways-boost-retirement-income
Note that when running success probabilities, the best one can do is 99%. The research is backward looking. The future may not repeat the historical data used.
Current research indicates that returns may be lower in the near future and so some experts have reduced the initial withdrawal rate. That is reflected in the Benz article.
There are different approaches, including using “guard rails”. Generally, if one anticipates fewer years in retirement then a safe withdrawal rate may be higher.
As for if “two can live as cheaply as one” in retirement, it takes a budget to sort this out. For example, if there is only one retirement income this may be paying for Medicare premiums and health care for two. Food costs may also be higher. Other costs (e.g. rent) are shared. For example, my spouse and I are both retired and there are insurance premiums for both of us. The total of all insurance premiums (auto, Medicare, long term care for two, house, etc.) is 11.9% of our income. There is also out-of-pocket medical and dental for two. That used 7.3% of our income in 2024. Of course, if there are two drawing social security, of SS and a pension, that will reduce the percentages because the income is greater.
I could break out our individual costs and yes, it is more than 1x for two individuals, but not 2x. Also, these are variables. In 2023 our medical costs were double what they were in 2024. A serious illness can do that.
Benz has other articles at Morningstar on the withdrawal rates. Here’s an article with extensive tables for different periods, such as withdrawals for shorter periods than 30 years. https://www.morningstar.com/retirement/how-retirees-can-determine-safe-withdrawal-rate-2025
I think the question of how to regard the 4% rule for a couple has been adequately addresses. I think Dick Quinn’s comment on the age of each person in the couple is key. The 4% rule was analyzed for a certain team period. If one or both members of the couple has a reasonable chance of living significantly, then that needs to be taken into account.
With regard to the “two can live more cheaply than one” question, the Maxifi Financial Planning software has a concise article on how they handle that (including how they handle children’s consumption). Spoiler alert, they default to a 1.6 factor for 2 adults living together. You can vary that in the software if there are specific reasons to consider.
I’m missing something. The variable is the amount upon which the 4% is based. If you can live as a household on $40,000 a year then you need $1,000,100 no matter how many in the household. If that household declines the remaining people in theory have more spendable income. The glitch could be if there is a significant difference in ages of the retiree and spouse.
I know this is perhaps a minor point, but why $1,000,100, rather than $1 million?
Typo
I agree with the post from the author that there are two different questions being kicked around in this thread.
The 4% rule does not address question #2, because the purpose of the rule is not to satisfy actual living requirements. It’s there as a first guess as to how to stretch assets to provide 30 years of “spending money” — i.e., don’t draw down your assets too quickly, or you may run out of money before you reach the end of that hypothetical 30 years of retirement.
If you estimate that you will need more than the amount of money that an annual (inflation-adjusted) 4% withdrawal rate can provide, then (as Jonathan points out) you need to make some adjustments to fill the gap between what you can expect using the 4% rule and what you project you will need. Maybe the 39 cats will have to go, and maybe you also need to (1) delay the start of retirement so you don’t need 30 years of withdrawals + have more years to accumulate assets + increase your monthly Social Security check, (2) reduce your “requirements” for income by cutting expenses and lifestyle expectations, (3) increase income by part-time work during retirement (“Would you like fries with that?”). None of these adjustments has anything to do with the 4% rule.
The final question posed by the author is indeed a valid question, “What factor do you need to multiply by one person’s expenses to come up with the amount needed for two people?” That can be approximated by making some simplifying assumptions. I.e., there are shared costs (assume only housing) and there are individual costs (everything else).
If we guess that housing costs are x% of expenses for one person, then for two people (all other things being equal) the total expenses can be estimated by the formula [Total Expenses] = (2-x)*[Expenses for one]
If housing costs are 30% of expenses for one person, then the factor would be: 2-0.3 = 1.7
It’s not a particularly precise estimate, but it gives an order of magnitude guess. Your mileage may vary….
The 4% rule is blind to whether you are drawing for a single, couple or a dog. It’s just a shortcut for what you should be able to draw from a given value of portfolio at a point in time and thereafter inflate it without ever running out of cash.
It’s possible that in a couple you might have increased survivorship risk of one party so might want to factor that in ( and use say 3.8%) but as it applies from any age, so a 30 year old could in theory use it if they had a big pot at that age it should be fine for those 60+.
It’s spending needs and how they might vary unforseeably you should be more concerned about I think. 4% rule tells you what you might be able to draw on top of other income but tells you nothing about what you need.
If 4% of your portfolio funds the expenses of two people, it will work even better with one person (lower expenses).
When thinking about funding retirement over the long term, I think one needs to begin with demand rather than supply. If you begin this way, the question of whether you are paying for the expense of one person or two is moot. By demand, of course, I am referring to how much you are spending while you (and partner) are still working. And, if you have visualized how your life might change after retirement, you can adjust your spending need for your future retirement lifestyle.
Once you know how much you will need to fund your retirement per year, you can examine your funding options for how you will come up with this amount of money. There are many calculators available which will then let you prognosticate how your funding sources will hold up over longer time periods in covering your retirement expenses.
Of course you must examine where the CASH will come from. You will be spending after-tax $$, so you will have to consider which sources you will use to supply these after-tax dollars in order to minimize your taxes.
Rules-of-thumb, like the 4% “rule”, are only rough mental short cuts which are fine when you are 40 and thinking of 25 years from now. When you are 62, you have to get your hands dirty and do real planning. If you aren’t conversant with spreadsheets etc, you can find a fee-only financial planner who can do it for you.
Finally, the 4% rule also makes assumptions about how your retirement nest egg is invested. I think that the Boglehead Wiki covers this subject and everything else about retirement in great detail.
https://www.bogleheads.org/wiki/Main_Page
Along those lines John I have been unable to find guidance as to how the 4% suggestion would be changed when one is retired and living off of their retirement assets while delaying Social Security until 70 which is the case for my wife and I. Theoretically I think the number could be higher as you are essentially paying for what is in effect a higher inflation protected annuity payment.
As I wrote in a comment on a previous post:
I calculated our withdrawal percentage from our assets last year, and determined it was 5%. That does sound high compared to the “rule” of a 4% safe withdrawal rate, but our invest balance increased slightly due to an 11% return.
Yes what you are saying is you’re unlikely to need the same draw until death so taking 5% now and maybe 3% later is broadly equivalent ( not identical because that extra you take now doesn’t have the extra years to grow.)
Remember the 4% rule is not binding and you can find different studies which suggest it’s too conservative in most scenarios or alternately not completely bombproof. But it is a useful guardrail and really helpful for those trying to answer the “How much do I need before I can retire?” question.
In reality we can always choose to underspend ( cut vacations and luxuries in years when portfolio is down for instance) or overspend (extra treats when portfolio is making strong progress) which has been suggested are ways of justifying a greater draw.
The 5% was by accident as we are conservative in our spending and thus don’t have a budget. The advantage of living frugally.
The 4% rule tells you how much you can withdraw from a given-sized portfolio, whether you’re single or in a relationship. Is that withdrawal amount, when coupled with Social Security and other retirement income, enough for a comfortable retirement? I think you can only answer that by giving some thought to how much you currently spend and how you envisage that changing once retired.
I think we’re dealing with two different issues here, Jonathan. And I think both of our points are valid, but let’s see what you think.
A more conservative, simple approach is to just multiply your current income by 25 as your retirement savings goals and then try to stay near or below the 4% per year spending. Your choice if you want to drop that to 20x and live more modestly and donate or leave less to heirs. IRA RMD withdrawals ramp up from 2,2% over the retirement years and along with SS payments should keep you in a safe income range regardless of the actuarial estimates you are guessing at.
But there you have to define current income carefully. Net or gross? What about amounts diverted to savings etc now?
Probably better to describe it as spending but even then there will be changes pre and post retirement likely lower or nil mortgage payments but quite possibly higher medical premiums and out of pockets etc.
I stand by my earlier comment: The 4% rule is a guide to how much money you can get each year from portfolio whether you’re single, married or living with 39 cats. Need more income that the rule suggests you can have based on your current portfolio’s size? Better save more money (or get rid of the cats).
Exactly! Why are people making it so complicated?
Also, the eventual needs of the spouse last to die.
I say life insurance should play a role in that.