FINANCIAL FOCUS®: Does the 4% Rule Still Make Sense for Your Retirement? is provided by Edward Jones for use by contributor Aubrey Wilson. This article is published in the Fall/Winter 2025 Edition of Vibrant Senior Options Resource Guide Magazine.
A Helpful Starting Point
You may have heard of the “4% rule” when it comes to retirement. The idea is simple: After you retire, you withdraw 4% of your investment portfolio each year. In theory, this helps ensure your savings last for your lifetime. While this rule can be a helpful starting point, it’s not a one-size-fits-all, and it’s definitely not a substitute for a plan tailored to your specific needs, wants and wishes.
The 4% Rule as a Guide
The truth is, how much to withdraw in retirement depends on factors like when you retire, if you’ll work part time, how long you expect retirement to last, your lifestyle goals, inflation and whether you want to leave a financial legacy to heirs. So, the 4% rule should be viewed as more of a guide than a strict rule.
Adjust the Rule for Retirement Age
Let’s start with age. The 4% rule is often based on someone retiring at 65 and expecting to live until about 92. However, if you retire earlier, you may want your portfolio to stretch further. In that case, you may need to start with a lower withdrawal rate, perhaps closer to 3%. If you retire later and depending on your financial situation, you might safely withdraw a little more, perhaps 4.5% to 5%.
The Role of Retirement Lifestyle
Your retirement lifestyle also plays a big role. Are you planning to travel the world or spend more time at home? If you expect higher spending in the early years of retirement, you may need to adjust your withdrawal rate or plan to reduce spending later to balance things out.
Your Financial Flexibility
Your financial flexibility matters too. If you have less wiggle room with your expenses, rely heavily on your portfolio for income or want to preserve wealth for your heirs, a more conservative approach might be wise. In this conservative scenario, your portfolio withdrawals may be met from interest and dividends.
Adjust the Rule for Retirement Age
Let’s start with age. The 4% rule is often based on someone retiring at 65 and expecting to live until about 92. However, if you retire earlier, you may want your portfolio to stretch further. In that case, you may need to start with a lower withdrawal rate, perhaps closer to 3%. If you retire later and depending on your financial situation, you might safely withdraw a little more, perhaps 4.5% to 5%.
Your retirement lifestyle also plays a big role. Are you planning to travel the world or spend more time at home? If you expect higher spending in the early years of retirement, you may need to adjust your withdrawal rate or plan to reduce spending later to balance things out.
The Inflation Rate
An additional consideration is the inflation rate. A well-built strategy usually includes small annual increases in withdrawals to keep up with rising costs roughly 2.75% per year, but if the markets have had a tough year or you don’t need the extra income, it might be smart to skip an increase. Being flexible can improve the chances your money will last.
The Bottom Line
The bottom line? The 4% rule is a useful starting point, but it’s just that — a starting point. A good financial advisor can help you build a strategy that reflects your age, your goals and your full financial picture. By revisiting your plan regularly and staying flexible, you’ll give yourself the best shot at turning your savings into a secure, fulfilling retirement.
This content is provided by Edward Jones for use by Aubrey Wilson, your Edward Jones Financial Advisor at 360-588-4548.
