Rethinking The 4 Percent Rule For Retirement

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(Tax Credits/Flickr)
(Tax Credits/Flickr)

Retirees have depended on the 4 percent rule to help guide their future financial planning since the mid 1990s.

The rule goes that if a retiree withdraws up to 4.5 percent from their savings every year, their nest egg should last for the next 30 years.

However, it seems the rule is out of date with current economic realities of low returns.

Bill Bengen came up with the rule, and he is now retired himself. He joins Here & Now's Meghna Chakrabarti to discuss retirement planning, and whether it's time to rethink his own rule for retirement.

Interview Highlights: Bill Bengen

On whether he has followed his 4 percent rule

"I have a financial adviser who has set up my financial plan, and they use software to determine it. For most people, to be perfectly honest, applying the 4 1/2 percent rule is probably not wise — even dangerous — because there are very simple assumptions that I used to develop that rule. Most people's retirement is more complex. They'll have annuities, they'll have inheritances, they'll have special expenses — and those really need to be figured in using software."

On who could use his rule

"I wouldn't do it. Unless you have a very simple retirement situation, where maybe your only income is Social Security and all your expenses are going up with inflation — which are the assumptions I used to develop the rule — you probably should be looking to use software or go to a financial adviser to help, because you will be misled if you try to apply that 4 1/2 percent rule directly to your investments."

On his new advice for retirement

"We're really in a unique situation that we haven't experienced in history. Because of the financial crisis in 2008 and the way in which governments and central banks are dealing with it — keeping interest rates very low, penalizing savers, creating a large amount of money being printed — and the threat of inflation, we don't really know what's gonna happen. We've never been here before. We've never had so many countries all at once printing money. So I recommended to my clients before I retired to be as conservative as they felt they could be, because we may be in an entirely new situation where past rules may not apply. You just have to be, I think it's wise, to be conservative at this point."


  • William Bengen, a recently retired financial planner and creator of the 4 percent rule.

This segment aired on November 29, 2013.


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