The 4% Rule Update: Why Its Creator Now Says 4.7% Is Safe

Quick Answer

Bill Bengen, the financial planner who created the safe withdrawal rate 4 percent rule in 1994, has revised his own number upward. His updated research suggests 4.7% is safe across most historical periods. Some scenarios support even higher rates. The original 4% was based on the single worst 30-year stretch in American market history. Most retirees will never face that worst case.

What Changed

In 1994, Bengen asked a simple question. If someone retired at the worst possible moment in history, how much could they withdraw each year without running out of money in 30 years?

The answer was 4.15%, rounded down to 4% for simplicity. That number came from a retiree who started withdrawals in 1966, right before a brutal stretch of high inflation and poor stock returns.

Bengen kept researching. He added small-cap stocks to the portfolio mix and extended the data. He tested more scenarios. The worst case got better. His updated analysis, published over several papers and interviews, puts the safe floor closer to 4.7%.

Two things changed. First, Bengen shifted from a 50/50 stock-bond split to a 75/25 allocation with higher equity exposure. Second, he added small-cap value stocks alongside the S&P 500. Both changes produced better risk-adjusted returns over long periods. The original study assumed a conservative mix of large-cap stocks and intermediate-term government bonds that most actual investors have long since moved past.

This matters because the 4.7% number assumes that higher equity allocation. If you hold a 50/50 portfolio, the old 4% floor is still your number.

Why the Original 4% Was Conservative

The 4% rule is not an average. It is a floor. It answers the question: what is the most you could withdraw and still survive the worst period in recorded market history?

Think of it like packing for weather. The 4% rule packs for the worst storm ever recorded. That storm was the 1966 to 1995 period, which combined a vicious bear market, oil shocks, and inflation above 10%.

In the majority of historical 30-year periods, a 4% withdrawal rate left retirees with more money than they started with. In many cases, the ending portfolio was two or three times the starting balance.

The median outcome of the safe withdrawal rate 4 percent rule is not scraping by. The median outcome is dying rich.

What This Means for Early Retirees

Bengen's original study covered 30 years. If you retire at 40, you need your money to last 50 or 60 years. A longer runway means more exposure to bad sequences of returns.

For a 50-year retirement, the safe withdrawal rate drops. How much depends on your assumptions about future returns, but most studies put it between 3.3% and 3.8%.

This does not mean you need a bigger nest egg than you think. It means you need a plan that adapts. A retiree who cuts spending by 15% during a bear market has a success rate above 95% in historical simulations, even at a 5% withdrawal rate. A retiree who withdraws the same amount regardless of market conditions does not come close.

Flexibility is worth more than an extra half percent of withdrawal rate. You can run your own Monte Carlo simulation to see exactly how much flexibility buys you.

The Real Risk Nobody Talks About

The internet debates whether 4% or 4.7% is the right number. This misses the point.

The exact percentage matters far less than your willingness to adjust. A retiree spending 5% who can cut to 3.5% in a bad year is safer than a retiree spending 3.5% who cannot cut at all because every dollar is committed to fixed expenses.

Charlie Munger once said the first rule of compounding is to never interrupt it unnecessarily. The retirement version of this: the first rule of withdrawals is to never withdraw from a falling portfolio when you have any alternative.

Keep two years of expenses in cash or short-term bonds. When the market drops, spend from that buffer. When the market recovers, refill it. This simple strategy turns the safe withdrawal rate 4 percent rule from a rigid ceiling into a comfortable guideline.

What the Models Leave Out

Every withdrawal rate study assumes you pay no taxes. In reality, pulling $40,000 from a traditional IRA is not the same as pulling $40,000 from a Roth. The traditional withdrawal might cost you $6,000 to $10,000 in federal and state taxes, depending on your bracket. That means your effective withdrawal is higher than the headline rate.

The fix: hold money in multiple account types. Traditional, Roth, and taxable. In low-income years, convert some traditional to Roth. In high-income years, pull from Roth or taxable. This flexibility lets you manage your tax bill the same way you manage your spending, year by year.

Healthcare is the other gap. If you retire before 65, you are buying insurance on the open market. That can run $500 to $1,500 per month. Manage your withdrawals carefully and you may qualify for ACA subsidies that cut that bill in half. Pull too much in one year and the subsidy disappears. Your withdrawal strategy and your healthcare strategy are the same strategy.

Frequently Asked Questions

Does the 4% rule include Social Security?

No. Bengen's study assumed withdrawals from an investment portfolio only. Social Security is additional income on top. If you expect $24,000 per year from Social Security and spend $60,000, you only need your portfolio to cover $36,000. Your effective withdrawal rate is lower than the headline number.

Should I use 4% or 4.7%?

Use whichever makes you sleep at night, then build flexibility into your plan. The difference on a $1 million portfolio is $7,000 per year. That matters. But your ability to cut spending in bad years matters more. Run the numbers with our SWR analyzer to see your specific odds.

What about inflation?

The 4% rule already accounts for inflation. The original study assumed you increase your withdrawal by the CPI each year. So if you start at $40,000, and inflation is 3%, year two is $41,200. The rule survived even the double-digit inflation of the 1970s.

Is the 4% rule dead?

People have been declaring the 4% rule dead since the day it was published. It survived the dot-com crash, the 2008 financial crisis, and COVID. The rule is based on the worst outcomes in over 100 years of data. It is conservative by design. If anything, Bengen's update suggests it was too conservative.

Sources

Bengen, William P. "Determining Withdrawal Rates Using Historical Data." Journal of Financial Planning, October 1994.
Bengen, William P. Interview with Financial Advisor Magazine, October 2020, updating the safe withdrawal rate to 4.7% with small-cap allocation.
Cooley, Philip L., Carl M. Hubbard, and Daniel T. Walz. "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable" (Trinity Study). AAII Journal, February 1998.
Kitces, Michael. "What If Anything Is Safe About the 4% Rule?" Nerd's Eye View, 2022. Analysis of median outcomes and ending portfolio values under the 4% rule.