How much can you safely spend in retirement without running out of money?
It’s one of the biggest questions retirees face. For years, many people have looked to the well-known “4% rule” for guidance. But as helpful as that rule may be, it’s not as simple—or as reliable—as many assume.
Today, Mark Biller, Executive Editor and Senior Portfolio Manager at Sound Mind Investing, joined us to revisit this widely used guideline and explain why a more flexible, personalized approach may better serve retirees.
Why Retirement Spending Is More Complicated Than Saving
Saving for retirement is often more straightforward than spending in retirement.
During working years, many people invest consistently, contribute to retirement accounts, and let time and compound growth do their work. But retirement introduces a new challenge: no one knows exactly how long their money needs to last.
That uncertainty changes everything. Retirees must make decisions while facing several unknowns:
Future market returns
Inflation rates
Interest rates
Healthcare costs
LongevityBecause of those variables, determining a “safe” withdrawal rate becomes one of the most difficult parts of financial planning.
Where the 4% Rule Came From
The 4% rule originated with financial planner Bill Bengen in the early 1990s.
Instead of trying to predict the future, Bengen studied historical market data. He examined how retirees who began in difficult economic periods—such as the mid-1920s—would have fared over a 30-year retirement.
His conclusion: an initial withdrawal rate of 4.15%, followed by annual inflation adjustments, would have sustained every portfolio in his study for at least 30 years, even under the worst historical conditions.
That’s an important detail.
The 4.15% figure wasn’t intended to be the ideal spending strategy for everyone. It was the lowest common denominator—the floor that worked even in the toughest scenarios.
Over time, that finding was simplified into the “4% rule.” Many people began to treat it as the optimal answer for nearly every retiree. But according to Biller, that was never the point.
Rules of thumb can be helpful as rough planning tools, especially for someone years away from retirement who is trying to estimate future needs. But once retirement draws near, more precision is needed.
A single percentage cannot account for your income sources, goals, spending habits, tax picture, or life expectancy.
What New Research Suggests
Sound Mind Investing conducted its own analysis under different assumptions, including a 50/50 stock-and-bond portfolio that became more conservative over time. Their findings showed:
A 5% initial withdrawal rate still worked even under difficult conditions.
A 6% withdrawal rate succeeded in most cases, though some portfolios ran short near the end.
At 7%, the risk increased significantly.Meanwhile, Bengen later revisited his original work with broader investment options and updated tools. His revised conclusions suggested:
4.7% may be a better minimum floor today.
Around 5.25% may be the “sweet spot” in many scenarios.These updates reinforce an important truth: retirement planning is more dynamic than a single number can capture.
Rather than anchoring to one percentage, retirees should build a plan around their full financial picture. That includes:
Social Security timing and benefits
Pension income
Spousal benefits
Expected expenses
Lifestyle goals
Taxes
Healthcare needs
Legacy desires
Market conditions over timeFinancial planning software or a trusted advisor can help run simulations, stress-test scenarios, and make adjustments
