Is the 4% Rule for Retirement Still Safe in 2025?

The 4% rule for retirement is a simple guideline that helps people figure out how much money they can safely withdraw from their savings each year without running out of money. It suggests that retirees can withdraw 4% of their retirement savings in the first year, then adjust that amount for inflation in the years that follow. This rule became popular because it gave a clear answer to a common question: how much do I need to retire, 4 percent rule helps estimate this amount by multiplying your expected yearly expenses by 25.

Since its introduction, the 4% rule has been widely used because it is easy to understand and provides a safe withdrawal rate based on past market data, which is quite important to achieve financial freedom. It helped many retirees plan their budgets and feel more confident about their retirement money.

The Origins of the 4% Rule

The 4% rule was first popularised by financial planner Bill Bengen in the 1990s. He studied historical market returns and found that withdrawing 4% annually from a balanced portfolio of stocks and bonds would likely last for at least 30 years. The Trinity Study later confirmed these findings, supporting the rule as a solid retirement withdrawal strategy.

The 4% Rule’s Assumptions

The rule assumes a portfolio mix of about 50-75% stocks and the rest in bonds. It also assumes you’ll withdraw money over a 30-year period and relies on historical market data to predict future results. These assumptions helped define the rule’s original safe withdrawal rate.

Why the 4% Rule May Be Outdated

Today, some experts believe the 4% rule may no longer be as safe as it once was. Bond yields are much lower than in past decades, which means returns might be lower going forward. Plus, people are living longer, so retirees may need their money to last 35 years or more. Market ups and downs have also increased, making withdrawals riskier.

The original 4% rule doesn’t allow for changes in spending due to emergencies or taxes, which can seriously affect your retirement savings. Real life often includes unexpected costs, and the rule’s fixed withdrawal amounts can be too rigid to handle these situations well.

Newer studies suggest a safer withdrawal rate might be closer to 3.7%, especially when considering longer lifespans and lower returns.

What Bill Bengen (The Creator) Now Says

Interestingly, Bill Bengen has updated his advice, saying that 4.7% can be a safe baseline withdrawal in many cases, with average portfolio returns closer to 7%. He suggests that retirees who follow good investing habits and adjust withdrawals thoughtfully might safely take out more than 4% in typical scenarios.

Modern Alternatives to the 4% Rule

Many retirees now use flexible withdrawal plans that adjust based on market performance. These include guardrails or rules that reduce spending after market losses and increase it during gains. Such dynamic strategies help protect savings better than a fixed percentage.

Another popular approach is to use guaranteed income sources like Social Security or annuities to cover essential expenses. This “bridge” strategy reduces pressure on your investments and makes withdrawal rates safer.

Practical Considerations for 2025 Retirees

Required Minimum Distributions (RMDs) force retirees to withdraw a minimum amount from certain retirement accounts starting at age 73. These withdrawals can affect your overall withdrawal plan. Strategies like reinvesting excess money, doing Roth conversions, or charitable donations can help manage RMDs effectively.

It’s also important to plan your budget carefully, especially for the first 10 years of retirement. Consider healthcare costs, home expenses, and other major costs that might come up. Proper budgeting can help you avoid overspending and keep your plan on track.

Conclusion

The 4% rule for retirement still has value, mainly as a helpful starting point to estimate safe withdrawals. However, it’s no longer a perfect blueprint for everyone. Today’s retirees should consider hybrid approaches that use flexibility, guardrails, and personalised strategies to adjust withdrawals based on their unique situations. By combining smart planning with dynamic withdrawal methods, you can better protect your savings and enjoy a more secure retirement in 2025 and beyond.