This article appeared in the Albuquerque Journal on October 14, 2025
Most retirees experience some anxiety when they end their career and move to what is called a “distribution phase” in financial lingo. The transition from living on their earnings during their career, to suddenly relying on their savings and investments can be difficult.
Retirees report their biggest fear is they will run out of money before they die. Knowing how much money they can safely withdraw from their investments is a major factor for enjoying retirement.
William Bengen, a financial planner, first published statistical analysis in 1994 in the Journal of Financial Planning, after analyzing the maximum withdrawal rate that would allow a retiree’s nest egg to be sustained for 30 years. His methodology looked at historical returns from 1926 through 1993, and he concluded that 4.15 percent was the amount investors could safely withdraw each year. This was labeled by the financial industry as the “4 percent rule,” which became a rule-of-thumb concept that is widely used by investors and retirees. His initial research only included US large-company stocks and US intermediate-term US government bonds.
Bengen’s 4 percent rule entailed withdrawing 4.15 percent of the starting portfolio value in the first year of retirement, then increasing the amount each year with an inflation factor. It was based on having an investment portfolio with 60% stocks and 40% bonds and rebalancing the portfolio each year. The goal was to have a portfolio balance of zero at the end of 30 years.
Bengen raised the maximum safe withdrawal rate to 4.5 percent a few years later, when he added small-cap stocks to his analysis.
Bengen has reanalyzed the data (through 2022), and he recently published a new book, A Richer Retirement: Supercharging the 4 Percent Rule to Spend More and Enjoy More. He added additional asset classes, including US micro-cap stocks, US mid-cap stocks, international stocks, and US Treasury bills. He has named the maximum safe withdrawal rate the SAFEMAX, and it has risen from 4.5 percent to 4.7 percent.
If a retiree has a $1 million portfolio, the 4.7 percent rule allows for only $47,000 in withdrawals in the first year. A $500,000 portfolio allows for only $23,500 in withdrawals. These figures may seem rather small. Of course, most retirees rely on Social Security benefits and other income—such as pensions, annuities, or part-time employment—in addition to the withdrawals from the portfolio.
I highly recommend Bengen’s new book. It is filled with information about his analysis, as well as chapters discussing tax considerations and numerous case studies. His website—bengenfs.com —is also an excellent resource.
Beyond the 4.7 Percent Rule
Several details are essential to understanding the 4.7 percent rule.
- SAFEMAX is the Worst-Case Scenario
Bengen emphasizes that his SAFEMAX (4.7 percent) is the worst-case scenario for any theoretical retiree based on historical data beginning in 1926. His goal was to make sure that a retiree would not run out of money any sooner than a 30-year retirement period, so it was based on the theoretical retiree who retired at the worst possible time. The 4.7 percent rule was based on a person who retired on October 31, 1968. This person would have faced several bear markets early in retirement, in addition to an extended period with high inflation from 1969-1981.
Bengen explains that a withdrawal percentage above 4.7 may work fine for retirees who do not want to follow the 100% SAFEMAX. His analysis suggests that a withdrawal rate of 5.25 percent would provide (historically) a 95 percent “success” rate, and 5.75 percent withdrawal rate would provide an 84 percent success rate. However, he also mentions that the “SAFEMAX” has been declining since 1982 due to “an extended ascent to record-high stock market valuations” and the major bear markets of 2000-2002 and 2007-2009.
- Analysis Is Based On Historical Data
History does not always repeat itself. If the US stock market has poor performance over the next 5, 10, or 20 years, the SAFEMAX analysis will not apply.
- Flexibility Is Key
A higher withdrawal percentage than 4.7 percent may be used in some years if the retiree is willing to reduce withdrawals in years with poor investment performance and/or high inflation. Vacations, replacing a car, or remodeling a home may be expenses that can be cancelled or delayed. Likewise, a higher withdrawal percentage may be used if the stock market has higher-than-expected performance in some years. This idea was developed by financial planner Jonathan Guyton, when he added decision rules and guardrails to the concept of withdrawal rates. (For more information, look online for “Guyton-Klinger Guardrails Approach.”)
- Research Is Based On Depleting the Portfolio
Bengen’s research included having a portfolio equal to zero at the end of 30 years. If you want to leave an inheritance for children or grandchildren, the SAFEMAX will be significantly lower. Bengen provides these details in his book.
Financial security (and managing your money wisely during retirement) can reduce worry and provide contentment. Yet a happy retirement includes far more than money. Enjoying close relationships, having a sense of purpose, and focusing on your health are all essential.