4% retirement rule is gone … so what is it now?

This morning I presented, to an industry association group called the Financial Planning Association of Northern California (FPANC), a brief summary of the retirement income drawdown research that my colleagues and I have had peer reviewed and  published over the last few years.

Many of the postings when you Google 4% rule in retirement are based on First Generation research. If you see reference to “safe withdrawal rates” (SWR) this is likely a reference to First Generation of research.

As a thought leader on this topic, I prefer to call the dynamic research Second Generation research, especially when both the markets and longevity probabilities are combined within the simulations/calculations. Rather than determining SWRs, I think of the Second Generation of research and thought as more focused on “prudent withdrawal rates” (PWR) because neither market returns or longevity are known in advance.

The below presentation discusses how the Second Generation research is dynamic …

  • distributions adjust each year based on age.
  • end age adjusts each year as you age; e.g., expected longevity for a 65-year-old is not the same expected longevity for a 75-year-old.
  • distributions adjust based on whether you want to consume more early in retirement, and less later in retirement.
  • distributions adjust based on whether you want to leave a bequest, or not.
  • distributions also need to adjust based on what the economy and markets do.

The industry calls this income a “withdrawal rate” since the income is determined by applying a withdrawal percentage to your retirement savings. However, anything you read that refers to 4% is likely outdated. It could be more, or less, than 4% depending on your age and goals. Rarely, is it exactly 4% because you can’t shoe horn all retirees into one over-simplified rule anymore.


The below presentation shows the dynamics of retirement distributions based on current Second Generation research on the topic.


There is a five article series that explains simply how to apply the concepts in the presentation below. My link goes to the fifth article in the series since the end of that article includes links to the other four articles.


Link to Slideshare posting.

Note: Concepts in the presentation do not prevent loss. Spending more than sustainable amounts at any point in time may lead to depletion of resources before depletion of life.

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