Why You Should Save More Than the 4% Rule for Retirement


Retirement planning is more vital than ever, but it is also more difficult. With recent high inflation rates, most seniors are concerned about outliving their savings. This risk is extremely real and must be carefully considered in order to have a pleasant retirement.

Retirement and investment planning can be complicated, but there are two crucial principles to understand: the "4% rule" and "sequence of returns risk." Read our most recent blog to learn everything you need to know:

Because markets and the economy are unpredictable, it is impossible to schedule events such as daily market changes or the commencement of retirement during a bull or bear market. Nonetheless, by being disciplined, we can control our own behaviour and stay focused. As a result, a dependable financial plan that can adjust to unforeseen circumstances, along with skilled financial guidance, has been shown to be the most successful way in lowering retirement risks. Though there is no assurance of success, historical data backs up this strategy.

In today's world, how can retirees keep their peace of mind and quality of life?

Retirement and investment planning can be complicated, but there are two crucial principles to understand: the "4% rule" and "sequence of returns risk."

The 4% rule is a technique designed to solve the question of how much money you can withdraw from your retirement portfolio each year without depleting your savings. William Bengen, the program's designer, discovered that a 4% withdrawal rate has traditionally acted as a safe threshold for retirees to sustain their portfolios over a 30-year period while accounting for inflation. As a result, this is commonly referred to as the "SAFEMAX rate."

Maximum Retirement Withdrawal Rates Have Varied Throughout History

You may be asking if the 4% rule is still applicable today. The accompanying graphic demonstrates safe withdrawal rates based on historical 30-year periods and inflation rates for a 60/40 stock/bond portfolio, as well as recent year estimates.

According to the computations, the maximum withdrawal rate fell to 4% only once in the 1960s. In retrospect, retirees were able to withdraw 6.9% yearly without depleting money. Keep in mind that the safe withdrawal rate can fluctuate dramatically year after year due to market returns. Overall, these data provide retirees hope for consistent withdrawal rates.

When it comes to investing and the 4% rule, there are a few factors to keep in mind.

  • If you want to get the most out of your assets in the long run, you must stick to your investing strategy. Overreacting to short-term market volatility should be avoided because it can have a detrimental influence on your retirement withdrawal rates later on.
  • It's critical to examine your personal risk tolerance and portfolio composition, which might differ substantially amongst retirees. A 60/40 portfolio may be excessively aggressive for many people, especially in later life.

The Risk of Return Sequence Can Affect the Value of Your Retirement Portfolio

Finally, investment is about more than just market happenings; it is also about our personal risk tolerance and behaviour.

Retirement return risk sequence

Simple retirement savings rules of thumb may not properly account for the timing of bear and bull markets, which can have a substantial impact on the value of your portfolio and withdrawals. Withdrawing funds early in retirement, for example, corresponds to "selling low," leaving investors with less opportunity to gain from future bull markets and compound interest. Withdrawing while the market is up ("selling high"), on the other hand, allows your portfolio to keep a higher value and compound faster, offering a safety net during inevitable market downturns. As a result, any generic retirement saving rules should be used with caution. Investors cannot choose whether to enter a bull or bear market. They must instead adjust to the cards that are dealt to them.

Although the 4% rule is a good starting point, it may not be adequate to effectively manage retirement spending and risks. Retirees should obtain financial advice and establish a plan that adjusts to their changing requirements and circumstances to balance these elements. When setting withdrawal rates, different elements must be considered, and having a sensitive financial strategy is critical for successful retirement planning.

Life Expectancy and Withdrawal Rates

Did you know that basic financial rules of thumb do not account for rising life expectancies?

A 40-year-old guy, for example, has a life expectancy of 79 years now, but those in the 90th percentile may live into their 90s. Men and women over the age of 65 have an average life expectancy of 83 and 86 years, respectively. The 90th percentile, on the other hand, could live to be 94 or 97. This decade or more gaps can have a substantial influence on investment portfolios and financial plans, emphasising the importance of planning for a retirement that could last 20 to 40 years.

Longevity risk is the prospect of living longer than expected, and it is a major issue for most people. The danger is heightened because it is worse to run out of money than to leave some for loved ones, charities, and others. As a result, life expectancy is an important consideration in financial planning. Professional financial guidance may assist people in managing their longevity risk, which makes it even more important for everyone.


The 4% rule is a useful tool for retirees, but it is not a perfect answer. In today's turbulent market, investors must follow a long-term investing strategy and financial plan to reach financial security. To overcome the challenges posed by today's economic climate, it is critical to remain focused and devoted to your goals.

Do you want a personalised retirement plan to help your money last? Contact us today for a no-obligation retirement assessment: hello@expatbeleggen.com