The 4% Rule Revisited: A More Flexible Approach to Retirement Income – MoneySense

I originally planned to focus solely on that book, but eventually landed on a related project on my own site, asking more than a dozen financial advisors on both sides of the border what they think of the 4% rule and the adjustments Bengen describes in his follow-up book. The research was conducted through LinkedIn and Featured.com, who have been providing content for my site for some time. You can view the full set of responses on my blogbut at over 5,000 words it’s a bit long for the space normally allocated to this “Retired Money” column.

Here I’ll focus on the most insightful comments and add a few thoughts of my own. Let’s jump right in.

Expert in the field of trusts and estates Andrew IsraelSenior Corporate and Fiduciary Manager for Astra Trustsummarizes the basic gist of the original 4% rule:

“The 4% rule, created by CFP Bill Bengen in the 1990s, remains one of the most frequently cited retirement withdrawal guidelines. It suggests withdrawing 4% of your portfolio in the first year of retirement and adjusting that amount for inflation each year. The idea was to provide a sustainable income stream for at least 30 years without depleting your savings.”

Bengen’s new book “revises this concept using updated data and broader asset allocation,” Izrailo summarizes. “He now argues that the safe withdrawal rate could rise to around 4.7%, supported by stronger market performance and portfolio diversification beyond the original mix of stocks and bonds.”

4% is just a starting point

Like many of the other pension experts interviewed, Izraelo views the 4% rule as “a reliable starting point, but not a hard and fast rule.” The 4% guidance “provides structure for retirees who need clarity on how much to withdraw each year, but real-world circumstances require flexibility.”

For US investors, Izrailo still starts with 4% as a baseline because “it remains simple and conservative. I then evaluate three key factors before adjusting: market volatility, portfolio performance, and expected longevity.” For Canadian retirees, “I tend to start lower, around 3.5%, due to differences in taxation, mandatory RRIF withdrawal rules, and the impact of currency and inflation differences compared to U.S. portfolios.”

Toronto-based wealth advisor Matthew Ardrey of TriDelta Financial was not part of the Featured roundup, but agreed with the common view that the 4% rule, while a useful starting point, is only a guideline. “When I meet a client, I don’t rely on the 4% rule at all,” says Ardrey, who has worked with clients for more than 25 years. “I’ve learned that rules of thumb – like the 4% rule – pale in comparison to the clarity and confidence that comes from a well-crafted and personalized financial plan. Such a plan should reflect each person’s unique circumstances, priorities and goals, allowing him or her to develop the appropriate decumulation strategy for his or her situation.

“I would never want a broad directive to stand in the way of someone taking their dream retirement vacation or helping their children buy their first home,” he says. “Instead, I focus on creating a detailed plan that shows exactly how to achieve those goals. And of course, life is not linear. A strong plan is something that we can review and adapt as life changes, and that provides updated guidance to keep retirement on track.”

After reading A Richer Retirement, tour operator Nassira Sennoune says Bengen succeeds in transforming “what was once seen as a strict withdrawal formula into a flexible approach that prioritizes experience, adaptability and peace of mind… Bengen’s message is that retirement should not be about fear or limitation. Instead, it should be about living fully within realistic financial limits. By tailoring withdrawals to personal goals, market performance and the natural flow of retirement years, retirees can enjoy their savings as a source of freedom rather than anxiety.”

Almost all experts warn against a one-size-fits-all approach to the 4% rule or variations thereof. Financial advisor and teacher Winnie Sunexecutive producer of Modern motherhas been working with clients for over 20 years. She starts with 4% as a starting point and then adjusts this based on customers’ actual spending patterns and market conditions. “Last year I had a couple who were terrified of spending more than the calculated 4% – even though their portfolio had grown by 30% – and they skipped vacations they had been dreaming about for decades. We set them at 5.5% for two years because the calculations worked and life was short: they finally took that trip to Italy. The biggest mistake I see is not about the rate itself, but that people forget about the tax efficiency when taking withdrawals.”

Insurance broker from Oakville, Ontario James Inwood says the 4% rule is “a good guideline, but it’s not a magic number that you can set and forget. I’ve seen people get in trouble for not taking medical bills into account, which is a real wild card here in Canada,” he says. “I always tell people to build up a cash cushion and check the withdrawal rate every few years, rather than just locking it in permanently.”

Broader asset allocation

Bengen now recommends broader asset diversification by adding small percentages of international stocks and small-cap stocks to his historical investment portfolio of 50% U.S. large-cap stocks and 50% intermediate bonds, lawyer says Lisa Cummings. “He claims that with this broader diversification, the safe withdrawal rate could now be as high as 4.7% at best, and 4.15% at worst.”

Today’s retirees face both rising inflation and longer lifespans, she adds. Therefore, she advises clients to have a two-year cash reserve in case of prolonged negative markets, and otherwise maintain a flexible annual withdrawal margin ranging between 3.5 and 4.5%.

David Fritcha CPA with 40 years of experience serving small business owners, stopped treating the 4% rule as gospel when he noticed that their retirement income rarely came solely from traditional investment portfolios. “Most had proceeds from business sales, real estate holdings and irregular cash flows that made the 4% rule virtually irrelevant.”

He also realized that the order of shots and which vehicles caused the shots were more important than just annual percentage rates. “Forget the percentage and work backwards from your actual monthly expenses, then add in guaranteed income sources (Social Security, pensions, annuities) before you touch portfolio money. Most of my retired clients ended up taking out 2 to 3% because they structured things right on the front end.”

Fluctuations in income later in life can change the calculations

Digital marketer Fred Z. Poritsky says that changes in income trajectory at the end of one’s career can radically impact the mathematics of retirement withdrawal. The 4% rule assumes you’re done earning, but “if you keep one foot in the working world (consulting, part-time, passion projects that make money), you can probably push 5-6% in those active years since you add income streams.”