By Michael Russo
There’s no shortage of shortcuts in financial planning. Many rely on rules of thumb and blanket advice to simplify their work. One of the most well-known, casual guidelines involves the retirement portfolio withdrawal rate: the 4% rule.
Established back in the mid-1990s, the 4% rule dictated how to balance retirement distributions with future needs and other income sources. But is it still appropriate in today’s economic landscape?
What Is the 4% Rule?
The 4% rule says that if you have sufficiently saved for retirement, you can withdraw 4% from your account in year one and never run out of funds.
Every year in retirement—adjusting for inflation—the retiree theoretically maintains the 4% retirement portfolio withdrawal rate. The idea is to provide enough income while keeping enough set aside for the future. The rule was calculated using 30 years as a projected length of retirement.
Coincidentally, it has been around 30 years since 4% was suggested as an across-the-board retirement portfolio withdrawal rate. Is it still the best approach for retirees to take?
Inflation and Market Conditions
The financial marketplace was much different when the 4% rule was created. Since then, the economy has experienced a few recessions. Inflation has steadily increased, especially in the last five years. Market volatility has resulted in uncertainty and lower returns on investment.
For those reasons, a more conservative retirement portfolio withdrawal rate may be advisable. Many financial analysts recommend keeping it within a range of 3.3% to 4%. The exact percentage partly depends on how one’s investments are allocated. Length of retirement is also a consideration.
Longer Life Expectancy
Medical and technological advances have extended life expectancy in the U.S. As of 2023, it hit 78.4 years, more than three years greater than in 1995. That means retirees need to stretch their savings out longer than in the past.
To compensate, we suggest fine-tuning their withdrawal strategies to reflect their spending needs. We recommend monitoring market conditions to make proper adjustments.
Social Security Adjustments
Social Security benefits are in flux. In 2025, monthly benefits went up 2.5% to reflect cost-of-living adjustments (COLA). This change could result in benefit increases from a couple hundred dollars to more than $1,000 in some cases.
Although Social Security remains a bedrock of retirement, it is always subject to fluctuations. Retirement planning should reflect the latest estimates and projections so you can get a better picture of your expected income.
Tax-Efficient Withdrawal Strategies
The tax code undergoes adjustments every year, and they impact the order accounts should be withdrawn from.
An accepted rule is to first take distributions from taxable accounts—brokerage accounts, CDs, low-yield investments, real estate, and so forth. Tax-deferred accounts like 401(k)s and traditional IRAs come next, and Roth IRAs come last. Again, this can be impacted by legislative changes and potential tax bracket moves.
The Rise of Alternative Strategies
Generally, the 4% rule remains a helpful benchmark. However, many retirees experiment with alternative approaches that may suit certain situations, including the following:
Guardrails Approach
The strategy adapts withdrawals to market performance. Its overall goal is to maintain long-term value.
Buckets Strategy
This simple construct recommends sorting funds into three categories:
- Short-term (cash, low-risk investments)
- Medium-term (bonds, conservative investments)
- Long-term (stocks, mutual funds)
This approach reflects the concept of diversification, which is always important in managing portfolio risk.
Annuities and Pensions
Many retirees turn to these income vehicles to reinforce their retirement accounts and Social Security income.
Help in Setting Your Retirement Portfolio Withdrawal Rate
Guidelines like the 4% rule can help in retirement planning. But the reality is more complex. There’s no replacement for a financial advisor who can attune your retirement portfolio withdrawal rate to your needs.
Millstone Financial Group is here to help. When you contact us, you speak with advisors with extensive experience in managing retirement finances. Schedule a complimentary consultation by calling (732) 385-8544 or emailing [email protected].
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