To 4% or Not To 4% That Is the Question
The 4% Rule: A Helpful Starting Point, Not a Complete Plan
If you’ve spent any time researching retirement planning, chances are you’ve come across the 4% rule. It’s one of the most well-known—and most debated—rules of thumb out there. The idea is simple: in your first year of retirement, you withdraw 4% of your portfolio. Each year after that, you adjust for inflation. In theory, this should give you about 30 years of income.
Sounds easy enough, right? And for many, it can be a decent benchmark. But here’s the thing—your retirement isn’t a math problem. It’s your life. And no single percentage can capture your goals, your spending patterns, or the realities of the market.
At Fortitude Financial Planning, we view the 4% rule as a good conversation starter, but not the final answer. Real retirement planning requires more nuance, more personalization, and more flexibility.
Where the 4% Rule Comes From
The 4% rule traces back to a 1994 study by financial planner William Bengen. He looked at decades of stock and bond market data to figure out what withdrawal rate would have historically allowed retirees to make it through a 30-year retirement without running out of money. His answer: 4%, adjusted for inflation, worked in almost every scenario with a 50/50 stock and bond portfolio.
So, for example, if you retired with $1 million, you’d take $40,000 the first year, then increase that number a bit each year to keep up with inflation.
That’s the history. But let’s look at where the rule falls short today.
Why the 4% Rule Isn’t Perfect
It ignores market swings. If the market drops 20% in year two, should you really keep pulling the same amount (plus inflation)? The rule says yes. Reality says: maybe not.
It assumes you’ll spend evenly throughout retirement. Most people don’t. You may travel more in your 60s, slow down in your 70s, then face rising healthcare costs later on. Retirement spending isn’t flat—it’s dynamic.
It doesn’t consider taxes. A $40,000 withdrawal from a Roth IRA is very different from $40,000 pulled from a traditional IRA or 401(k). Taxes matter, and the 4% rule doesn’t factor them in.
It assumes a 30-year retirement. What if you retire early? What if longevity runs in your family? You may need your money to last 35–40 years—or more.
It’s based on the past. Historical returns are useful, but today’s interest rates, inflation trends, and market conditions are different. The future won’t look exactly like the past.
So, Is the 4% Rule Useless?
Not at all. It’s still a valuable tool—as long as you treat it as a benchmark, not a blueprint. It gives you a ballpark idea of what’s sustainable if your portfolio is invested for long-term growth and you’re disciplined about spending.
But for a retirement plan you can actually rely on, you need a strategy that reflects your life.
What We Do Differently at Fortitude Financial Planning
When we work with retirees (or soon-to-be retirees), we focus on building a personalized withdrawal strategy—not just applying a rule of thumb. Here’s what that looks like:
Start with cash flow. We dig into your real spending—housing, travel, hobbies, insurance, healthcare, taxes. We look at what’s fixed, what’s flexible, and what’s most important to you. That creates a realistic budget, not just a percentage pulled from your portfolio.
Coordinate income sources. Social Security, pensions, annuities, rental income, part-time work—all of these affect how much you really need to withdraw. Coordinating them helps you avoid taking more than necessary.
Plan for taxes. Timing matters. How and when you withdraw from accounts can make a huge difference in your tax bill, not just this year but over decades. Strategies like Roth conversions, managing capital gains, and planning for RMDs can save you thousands.
Adjust along the way. Retirement isn’t static. Markets move. Life happens. We meet regularly to revisit your plan, stress-test it, and make adjustments. Some years you may withdraw more, others less. Flexibility keeps your plan sustainable.
Think in guardrails, not rigid rules. Instead of sticking to 4% no matter what, we often use a guardrails approach—a flexible strategy that adjusts withdrawals up or down depending on portfolio performance. This helps protect against both overspending and underspending, so you can enjoy your retirement without the constant worry of running out of money.
A Quick Example
Let’s say you retire with $1.2 million in savings. The 4% rule says you can take $48,000 in the first year.
But what if:
You’ll receive $24,000 from Social Security.
You only need $60,000 total to live comfortably.
You plan to travel heavily for the next 5–10 years.
You also have both Roth and traditional IRAs.
A strict 4% withdrawal doesn’t capture your situation. Instead, we might:
Recommend drawing a little more early (maybe 5–6%) while travel is a priority.
Use Roth funds strategically to stay in a lower tax bracket.
Plan Roth conversions before RMDs begin at age 73.
Reduce withdrawals later, when expenses naturally decline and Social Security covers more of your needs.
That’s not a cookie-cutter plan. That’s a tailored strategy.
The Bottom Line
The 4% rule is a good starting point, but it doesn’t know you. It doesn’t know your lifestyle, your values, your health, or your tax picture.
At Fortitude Financial Planning, we help people move beyond rules of thumb to create retirement income strategies that are sustainable, tax-efficient, and aligned with how they actually want to live.
Your retirement deserves more than a formula. It deserves a plan that’s built around you.
Ready to build your withdrawal strategy? Schedule a call with Fortitude Financial Planning today, and let’s find the right balance for your retirement.
Feraud Calixte, J.D., CFP®
