For decades, the 4% rule has guided retirees seeking to live off their savings without running out of money. It became one of the most influential principles in retirement planning—simple, conservative, and reliable. The rule suggested that if you withdrew 4% of your retirement portfolio in your first year and adjusted that amount annually for inflation, your savings would likely last 30 years.
But now, new research suggests that this approach may actually be too conservative. The rule’s creator, Bill Bengen, has recently updated his findings. He now believes that most retirees can safely withdraw 4.7% in their first year of retirement—an increase that could mean thousands of dollars more in annual spending without increasing the risk of running out of money.
This small percentage shift could have a big impact on how retirees approach their financial freedom.
What the New 4.7% Rule Means
The new 4.7% rule allows retirees to spend more confidently in retirement. For example, someone with a $1 million portfolio using the old 4% rule could withdraw $40,000 in their first year. Under the updated rule, that amount increases to $47,000—a meaningful difference of $7,000 per year.
Over a 30-year retirement, assuming inflation adjustments, this could result in more than $300,000 in additional spending power. That’s money that could be used for travel, family experiences, or simply enjoying a more comfortable lifestyle.
However, Bengen’s update isn’t a blanket recommendation. The right withdrawal rate depends on multiple factors—from lifespan expectations to investment mix—and retirees should evaluate each carefully before making changes.
1. Planning Horizon: How Long Will Retirement Last?
The length of retirement is one of the biggest variables in withdrawal planning. Bengen’s original model assumed a 30-year retirement. However, with people living longer, many may need to plan for 35 to 40 years or more.
It’s wise to build in a safety buffer of at least 10 extra years beyond your expected lifespan. For example, if you retire at 60 and expect to live to 90, planning for 40 years ensures that longevity doesn’t become a financial risk.
A longer retirement generally requires lowering your withdrawal rate—perhaps to 3.5%—to preserve capital. Conversely, if your retirement horizon is shorter, you may safely increase your rate to 5% or even 6%. The key is balancing income needs with portfolio longevity.
2. Leaving a Legacy: How Much Do You Want to Pass On?
Bengen’s model assumes that by the end of the 30-year period, your portfolio will be nearly depleted. It’s designed for retirees who intend to spend down their wealth, not necessarily leave a large inheritance.
If leaving a legacy is a priority, you’ll need to lower your withdrawal rate. For instance, someone with a $2 million portfolio using the 4.7% rule would withdraw $94,000 annually. But if they wish to leave $500,000 behind, reducing withdrawals to around 3.5% (about $70,000 per year) would help achieve that goal.
Interestingly, real-world data shows that 90–95% of retirees who follow the 4% rule end up with portfolios larger than they started with after 30 years. Market growth, conservative spending, and lower-than-expected inflation all contribute to this surprising result. So while the models assume depletion, reality often delivers better outcomes.
3. Taxes Matter More Than You Think
Bengen’s withdrawal rates are based on pre-tax amounts, but taxes can significantly affect your take-home income. The real impact depends on which accounts your withdrawals come from:
- Traditional 401(k) or IRA: Withdrawals are taxed as ordinary income.
- Brokerage accounts: Withdrawals may trigger capital gains taxes.
- Roth accounts: Withdrawals are tax-free, offering full spending power.
For retirees aiming to maximize their income, prioritizing Roth withdrawals can provide more flexibility and reduce tax drag. For example, a $50,000 withdrawal from a Roth IRA is worth the full $50,000, whereas a similar amount from a traditional account could shrink to $40,000 after taxes.
4. Asset Allocation: The Foundation of Withdrawal Safety
The 4.7% rule isn’t one-size-fits-all—it’s based on a specific investment mix. According to Bengen, retirees should hold between 47% and 75% in stocks to maintain growth potential, with the rest split between bonds and real estate investments.
His “optimal” portfolio includes:
- 47% stocks for growth and inflation protection
- 33% bonds for stability
- 20% REITs (Real Estate Investment Trusts) for income and diversification
This mix provides a balance between safety and long-term performance. Deviating too far from it—especially by holding too much cash or too few equities—can lower the safe withdrawal rate and increase the risk of outliving savings.
5. Rebalancing: Keeping Risk Under Control
As markets fluctuate, your portfolio’s allocation can drift away from its target. Regular rebalancing—typically once per year—ensures you maintain your desired risk level and withdrawal sustainability.
For instance, if stocks outperform and rise from 47% to 60% of your portfolio, your exposure to market volatility increases. By selling some stocks and buying bonds or REITs, you bring your portfolio back in line with your target, preserving long-term stability.
Bengen even suggests that over time, retirees may increase their stock exposure modestly to keep up with inflation and maintain growth. Too much caution (for example, moving heavily into bonds) could make your money run out faster.
6. Investment Strategy: The Case for Low-Cost Index Funds
One assumption behind the 4.7% rule is that retirees invest primarily in low-cost index funds. These funds mirror market performance at minimal fees, making it easier to achieve steady returns that support sustainable withdrawals.
Actively managed funds, by contrast, charge higher fees and often underperform the market. Over decades, these costs can erode returns and reduce how much you can safely withdraw. Using index funds or ETFs helps retirees keep more of their money working for them, increasing both security and flexibility.
7. Withdrawal Timing: Spread It Out Like a Paycheck
Rather than taking one large withdrawal each year, Bengen recommends spreading withdrawals monthly—similar to receiving a paycheck. This strategy helps smooth out market fluctuations and reduces the risk of withdrawing large sums during market downturns.
For example, instead of taking $47,000 in January, a retiree could withdraw about $3,900 per month. This approach minimizes the chance of locking in losses when markets dip, supporting a more stable income throughout the year.
8. Flexibility: The Real Secret to Retirement Success
Perhaps the most important takeaway is that retirement planning isn’t static. Over a 30- or 40-year period, markets will rise and fall, inflation will vary, and life circumstances will change. The most successful retirees remain flexible, adjusting their withdrawals, spending, and investments as needed.
The updated rule provides a framework—but not a guarantee. The real goal isn’t to follow a percentage perfectly, but to maintain freedom and security throughout retirement. Revisit your plan annually, rebalance your portfolio, and make small adjustments based on market performance and personal needs.
The Bottom Line
The updated 4.7% rule offers retirees a valuable opportunity to enjoy more of their savings—without taking on additional risk. It reflects decades of market data and a better understanding of how portfolios perform in real-world conditions.
However, success still depends on smart planning:
- Keep your asset allocation balanced.
- Minimize fees and taxes.
- Rebalance regularly.
- Stay flexible as life evolves.
Retirement isn’t just about making your money last—it’s about using it to live fully, confidently, and with purpose. By understanding the principles behind sustainable withdrawals, you can strike the right balance between security and freedom—and make the most of the years you’ve worked so hard to enjoy.
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