Does the 4% Rule Still Work?
How Seniors Can Adjust To Match Inflation
The 4% rule has long been synonymous with retirement spending. The rule states that retirees can safely withdraw 4% of their retirement savings during their first year of retirement and then adjust that amount for inflation each year for the next 30 years. However, the Wall Street Journal1 has reported that the math is now changing as market forecasters predict lower returns, potentially changing how millions spend and save for their retirement years. This page outlines some of the report's findings and their creative tips on how to prepare for retirement Now.

4% Rule “May No Longer be Feasible.”-Morningstar
According to a report released by investment research firm Morningstar, the commonly cited 4% rule “may no longer be feasible.” In fact, those retiring now should spend no more than 3.3% of their savings during the first year, and then adjust for inflation after that, regardless of the market’s performance. For example, the 4% rule states that from a $1 million portfolio, you would be able to withdraw $40,000 during the first year of retirement safely. Using the 3.3% rule, that amount would be $33,000.

Researchers at Morningstar simulated future returns over 30 years and found that in about a quarter of the simulations, a 50% stock and 50% bond portfolio would run out of money if withdrawals remained at 4%.
While the difference seems minimal, a CNBC analysis found that the difference would be more noticeable later in retirement: $75,399 versus $62,205, respectively, at the 30th year using a 2.21% annual rate of inflation.
“It’s counterintuitive, but when the stock market and stock valuations are high, it’s the worst time to retire,” said Morningstar personal finance director Christine Benz, a co-author of the firm’s report, the WSJ reported.
Retirees have Options if they are Planning to Spend More than 3.3%, Including:
Working longer, which would reduce the number of years they’d need to rely on personal savings.
Delaying the year they start taking Social Security.
Varying portfolio withdrawals in response to market moves.
Waiving inflation adjustments in any year after which a portfolio sustains losses.
