New retiree withdrawal rate: Goodbye 4%, hello age divided by 20 (2024)

Robert Powell| Special for USA TODAY

How much can you safely withdraw from your retirement account each year without running out?

Well, in the good old days, you could withdraw 4% per year from your nest egg and it would last 30 years.Or at least that’s what financial planner Bill Bengen so famously wrote some 22 years ago.But now, in a world where interest rates float around zero and where investment returns are likely to be low for some time to come, blindly withdrawing 4% per year would be a disaster for your nest egg, and ultimately your standard of living.

So how might you determine a safe percentage of savings to spend in today’s world?

• The “feel-free” retirement spending strategy. The latest in a long history of research on the subject comes from Evan Inglis, a senior vice president at Nuveen Asset Management and a fellow of the Society of Actuaries.

Inglis’ recommendation: Simply divide your age by 20 (for couples, use the younger spouse’s age).

So, for example, someone who is 70 could safely spend 3.5% (70 ÷ 20 = 3.5) of their savings, while someone who is 80 could withdraw 4% (80 ÷ 20 = 4) and someone 65 could withdraw 3.25%.

“That is the amount one can spend over and above the amount of Social Security, pension, employment or other annuity-type income,” Ingalls wrote in his paper. “I call this the ‘feel-free’ spending level because one can feel free to spend at this level with little worry about significantly depleting one’s savings.”

What’s so great about this strategy? According to Inglis, it's “an easy-to-determine and remember guideline for those who do not have the time, expertise or inclination to do a lot of analysis.”

Other strategies, by contrast, require too much thinking. For instance, the original 4% rule of thumb had you adjusting the amount you withdrew each year for inflation. (Good luck with that.) And the income-replacement ratio rule of thumb, where you try to replace 70% to 80% of pre-retirement income from a variety of sources, was an exercise in futility as well.

• The 3% rule. Truth be told, there’s an even easier strategy to use to make sure you don’t outlive your assets. Simply withdraw 3% year in and year out. “Three percent could be viewed as a more conservative and simpler version of the well-known ‘4% rule,’” wrote Inglis.

• Not all agree. Some experts take issue with Inglis’ age-divided-by-20 strategy. “I agree that the proposed guidelines are a simple and conservative rule of thumb,” says Dirk Cotton, a financial planner and author of the Retirement Café blog. “As with all rules of thumb, this one has issues.”

While 3% is probably a good conservative starting point at age 65, age divided by 20 becomes far too conservative in late retirement, says Cotton. Moshe Milevsky, a York University professor, suggests that 5% is a more reasonable withdrawal for a manage80 than 4%and that 10% is more reasonable than 4.5% at age 90. “So (Inglis’) approach is likely to result in a lower standard of living than might be achievable,” says Cotton.

Inglis doesn’t disagree that a higher withdrawal rate might be more appropriate later in life. But he says his strategy balances the need for simplicity with the need to be accurate. Plus, he says, it’s unlikely that people will want to spend more as they age.

• Other considerations. Of course, there are all sorts of things to consider before you just adopt the age-divided-by-20 strategy. Here are some of the questions Inglis suggests asking when applying this rule (or other similar rules):

  • Do you have long-term care insurance? If you do, you can spend a little more. If you don’t, you may want to reduce your spending a bit.
  • Will you lose a significant amount of annuity income when your spouse dies?
  • Will you pay significant income taxes?
  • What if interest rates go up? First of all, you can’t expect that they will. You can probably spend a little more if they do, but if rates go up by 2 percentage points, you can’t increase your feel-free rate by 2% of your savings. The best advice is to stick to the divide-by-20 rule for the foreseeable future.
  • Do you want to pass on a certain amount to your kids or charity? Adjust your spending accordingly.

Robert Powell is editor ofRetirement Weekly, contributes regularly to USA TODAY,The Wall Street JournalandMarketWatch. Got questions about money? Email Bob at

New retiree withdrawal rate: Goodbye 4%, hello age divided by 20 (2024)


New retiree withdrawal rate: Goodbye 4%, hello age divided by 20? ›

What is the 4% rule and safe withdrawal rates in retirement? ›

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

How long will the 4% rule last for retirement? ›

The 4% rule is a widely known guideline for retirement spending that says you can safely withdraw 4% of your savings the first year, then adjust withdrawals for inflation annually. This rule aims to provide retirees high confidence that they won't outlive their savings for 30 years.

What is the 4% rule for pensions? ›

What is the 4% pension rule? A popular rule for pension savers is to take 4% of the value of their fund in the first year of withdrawals and increase that by the rate of inflation each year. This is supposed to last a typical retiree 30 years.

What is the Morningstar 4% rule? ›

The 4% rule suggests that retirees can safely withdraw 4% of their portfolio in the first year of retirement and then adjust that amount annually for inflation over the course of at least 30 years without having to worry about ever running out of money.

Why does the 4% rule no longer work for retirees? ›

Withdrawing 4% or less of retirement savings each year has long been a popular rule of thumb for retirees. However, due to high inflation and market volatility, the rule is less reliable now. Retirees will need to decrease their spending and withdrawal rate to 3.3% so they don't run out of money.

What is the $1000 a month rule for retirement? ›

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

How many people have $1,000,000 in retirement savings? ›

In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.

Does the 4% rule include Social Security? ›

The 4% rule and Social Security

You may be wondering if you should include your future Social Security income in this equation, and the simple answer is, you don't. Think of Social Security as added “security” to your retirement budget.

What is a good monthly retirement income? ›

Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

How to calculate the 4% rule? ›

One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

Who came up with the 4% rule for retirement? ›

William P. Bengen is a retired financial adviser who first articulated the 4% withdrawal rate ("Four percent rule") as a rule of thumb for withdrawal rates from retirement savings; it is eponymously known as the "Bengen rule".

What is a safe withdrawal rate for a 70 year old? ›

Description: The 4% rule suggests that retirees can safely withdraw 4% of their retirement portfolio balance each year without depleting their savings over a 30-year period. Rationale: This rule is based on historical market performance and assumes a balanced portfolio of stocks and bonds.

What is the 4 withdrawal rate? ›

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

What is the 4 percent rule for 500000? ›

That 4% number assumes it's 4% of your starting portfolio. So, you have a $500,000 portfolio, so 4% of that is $20,000 and you would spend that in year one. The next year you would spend the same amount adjusted by inflation. So, like as with Social Security, it would go up by the rate of inflation.

What is the rule of 5 in retirement? ›

We did the math—looking at history and simulating many potential outcomes—and landed on this: For a high degree of confidence that you can cover a consistent amount of expenses in retirement (i.e., it should work 90% of the time), aim to withdraw no more than 4% to 5% of your savings in the first year of retirement, ...

What is the 4 percent withdrawal method? ›

It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

What is the 4x rule for retirement? ›

The 4% Rule is intended to make your retirement savings last for 30 years or more. This rate of withdrawals means that most of the money used will be the interest and gains on investments, not principal, assuming a reasonably healthy market return.

What is the safest retirement withdrawal rate? ›

The sustainable withdrawal rate is the estimated percentage of savings you're able to withdraw each year throughout retirement without running out of money. As an estimate, aim to withdraw no more than 4% to 5% of your savings in the first year of retirement, then adjust that amount every year for inflation.

What is the formula for safe withdrawal rate? ›

Calculating the safe withdrawal rate can be as simple as using the 4 percent rule, a classic rule of thumb for financial planners. The 4 percent rule refers to withdrawing 4 percent of your portfolio's balance the first year of retirement, using the portfolio's balance when you retire to calculate your withdrawals.


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