Ever since financial planner William Bengen introduced the “4% rule” in the mid-90s, it has been a popular standard for determining a safe retirement withdrawal rate. The rule suggests that if you withdraw 4% of your portfolio in the first year of retirement and adjust that amount for inflation each subsequent year, your savings should last through a 30-year retirement.

Bengen's rule was based on 50 years of market and inflation data. His analysis showed that, over any 30-year period within those 50 years, an investor could withdraw an inflation-adjusted 4% annually without depleting their funds. This simple yet effective guideline quickly became a cornerstone of retirement planning.

The 4% rule, a popular guideline for retirement withdrawals, suggests that retirees can safely withdraw 4% of their retirement savings annually, adjusting for inflation, without running out of money over a 30-year period. However, this rule doesn't work for everyone due to various factors. While the 4% rule is a useful starting point, it doesn’t always align with real-life circumstances. Here’s why a personalized withdrawal strategy might be more suitable for you:

Unique Retirement Needs

Your retirement is unique, and a one-size-fits-all approach like the 4% rule may not fit your specific situation:

• Longevity: If you or your partner are likely to live longer than 30 years in retirement, you’ll need a more conservative withdrawal strategy. As people live longer, the 4% rule may not ensure funds last throughout an extended retirement period. Longevity risk requires a more conservative approach or alternative withdrawal strategies​
• Retirement Timing: Retiring earlier or later than the norm impacts the length of your retirement and the sustainability of a 4% withdrawal rate.
• Personal Goals: You might want to leave a legacy for your heirs or charities, which requires a different financial approach.

Spending and Withdrawal Rates

The 4% rule tells you what’s safe to withdraw but not necessarily what you can spend:

• Taxes: Taxes can significantly reduce the net amount you have available to spend. Depending on your tax situation and the type of accounts you hold (taxable vs. tax-deferred), your effective withdrawal rate might need adjustment.
• Inflation: While the 4% rule adjusts for inflation, non-inflation-adjusted income sources will lose purchasing power over time, increasing reliance on your withdrawals.

Changing Needs Over Time

Spending patterns often change throughout retirement:

• Early Retirement: Higher spending on travel and hobbies.
• Mid-Retirement: Stabilized spending as lifestyle slows down.
• Late Retirement: Increased spending on healthcare and assisted living.

Market Conditions and Withdrawal Rates
In a down market, continuing to withdraw the same amount can deplete your savings faster. A flexible withdrawal strategy can help mitigate this risk. In better-than-expected markets, you might want to increase spending to enjoy your gains.

Personalized Withdrawal Plans

A personalized retirement withdrawal plan considers:

• Your retirement timeline and your partner’s, if applicable.
• Variability in your spending needs.
• Specific retirement goals.
• Other sources of retirement income.
• The types of accounts from which you’re withdrawing.

While the 4% rule provides a helpful starting point, it is essential for retirees to consider their unique circumstances and be prepared to adjust their withdrawal strategy as needed. Personalized financial planning, considering market conditions, individual needs, and risks, can offer a more tailored and resilient retirement strategy. Working with a financial planner allows you to create a flexible, personalized strategy that adapts to your evolving needs and market conditions. This partnership ensures that your retirement plan remains on track, providing peace of mind and financial security.