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For several decades, the 4% rule has been a golden commandment with financial advisors and amateur planners. It’s fair to say that millions of people across the country are diligently focused on a “magic number” for their nest egg and an annual budget in retirement that hinges on this simple rule.
But the rule was developed in the 1990s and so much has changed in the economy since then that it may no longer be fit for purpose. That’s according to William Bengen, the financial expert who invented the rule.
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In his new book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, Bengen adds more recent data and context to update the golden standard that he himself set thirty years ago. He now suggests Americans can afford to withdraw a higher level than just 4%.
So does that mean you can safely extract 5%, 6% or even 7% from your portfolio every year? Here’s a closer look.
The new golden rule
In the modern economy, Bengen says the new rule is 4.7%, according to US News (1). That’s based on more recent inflation data, bond yields and stock market performance.
But that’s not the most interesting aspect of Bengen’s updated recommendation. Instead, it’s the fact that he considers the 4.7% number a starting point instead of a fixed rule. In other words, retirees should start with a 4.7% withdrawal and adjust every year based on inflation and market performance.
Simply put, there is no fixed, safe, universal withdrawal rate. And that’s the truth most financial experts miss.
The retirement truth most experts miss
The reality is that there is no one-size-fits-all withdrawal approach. The standard 4% rule was based on a traditional stocks-and-bonds portfolio and historical returns until the 1990s.
To find the best withdrawal rate for you, you’ll need to start with more recent data and also consider your own portfolio mix. If much of your portfolio is in high-yield dividend stocks with a robust track record of dividend growth, there’s a chance you can safely withdraw more than 4%.
Similarly, if much of your cash flow is generated from rental income on investment properties, you can customize your safe withdrawal rate based on that yield.
Mogul, for instance, is an investment platform offering fractional ownership in blue-chip rental properties, which gives investors monthly rental income, real-time appreciation and tax benefits — without the need for a hefty down payment or 3 a.m. tenant calls.
Founded by former Goldman Sachs real estate investors, the mogul team thoroughly vets every investment opportunity against a minimum requirement of 12%, even in downside scenarios. Across the board, the platform features an average annual IRR of 18.8%. Their cash-on-cash yields, meanwhile, average between 10% to 12% annually. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.
If you’re earning double-digit returns from real estate through platforms like this one, a 7% withdrawal rate may be safer for you than someone relying exclusively on bonds or fixed income securities.
Similarly, if your portfolio is much more conservative than the average retiree’s, your safe withdrawal rate may be significantly lower. For instance, if a sizable portion of your portfolio is invested in a Gold IRA through Priority Gold, your focus is likely on minimizing risk, volatility and taxes.
You’re looking for a safe haven, not regular cash flow. That’s fine, but it also means you need to aim for a withdrawal rate far lower than 7% or even 4%.
Ultimately, retirement planning isn’t really about a fixed number. It’s about building an income strategy smart enough to support your needs through retirement, giving you the confidence to spend it stress-free.
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U.S. News & World Report (1)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.