Creator of the 4% Rule Says It's Outdated: What He Says You Should Spend in Retirement Now

What Happened

Financial advisor Bill Bengen introduced the 4% rule back in 1994. It was a guideline to recommend that retirees could safely withdraw 4% of their retirement savings each year without running out of money over a 30-year period. For decades it has been a standard in retirement planning. Advisors across the country repeated it, relying on historical data and worst-case market scenarios.

But over 30 years later, Bengen believes that 4% is too low.

After revisiting his research with expanded market data and broader investment portfolios, Bengen has updated his recommendation to a 4.7% withdrawal rate. In strong economic conditions, he believes retirees can safely withdraw as much as 5.25% to 5.5% annually.

Why It Matters

The 4% rule was built for a particular environment where market conditions are volatile and inflation spiked, like in 1968. But Bengen's deeper dive into nearly 400 retirement simulations found that most of the time, retirees could have spent more than 4% without running out of money. In fact, the average safe withdrawal rate across those scenarios was closer to 7%.

His revised model accounts for modern portfolio options that include U.S. and international stocks, bonds, and alternative assets. It also emphasizes the outsized impact inflation can have on retirement security. In short, Bengen argues the old rule is too risk-averse for today’s retirees and doesn’t reflect current investment opportunities or spending realities.

How It Affects Readers

The cost of living in 2025 is a far cry from 1994. Back in the mid-nineties, the annual inflation rate was around 2.6%. But today it's closer to 3.5–4%, and higher in critical areas like housing, healthcare, and groceries.

According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) has more than doubled since 1994, meaning what cost $1 then costs over $2.10 now. Housing prices have tripled in many regions. Healthcare costs have surged, with retiree out-of-pocket expenses up over 150% since the '90s.

The original 4% rule, while a focal point of retirement planning for over three decades, seems a bit outdated in 2025. A withdrawal strategy that worked in a low-cost, low-inflation environment doesn’t go as far today. Using the old model, a $1 million nest egg would give you $40,000 in year one. Bengen’s updated 4.7% rule allows $47,000, and in more favorable conditions, as high as $55,000.

That extra income can help cover rising utility bills, insurance premiums, medical care, or just provide some breathing room in a higher-cost world.

This is notable for retirees, as underspending out of fear can mean missing out on meaningful experiences in your golden years. Additionally, for those planning their retirement distributions to abide by the 4% rule, this changes things. You may not need to save as much. Or, your current savings might last longer than you thought.  

The rules of retirement spending are evolving, as higher inflation and a more expensive lifestyle demand a smarter, more flexible strategy. Bengen’s revised guidance could be the update today’s retirees need.