William Bengen’s Updated 4% Rule: Is 4.7% the New Safe Withdrawal Rate?
Today we’re going to discuss updates made by the famed financial planner William Bengen. You may not recognize his name; however, it is very likely you’re familiar with his work. He was the financial planner who first introduced the concept of the 4 percent rule for retirement portfolio withdrawals back in 1994.
What Is the 4 Percent Rule?
William Bengen’s research, published in 1994, used historical market data to determine a safe withdrawal rate retirees could use when taking annual distributions from their portfolios without running out of money over a 30-year retirement.
The concept was simple, which is likely why it became so popular.
The 4 percent rule states that a retiree should:
Calculate the total value of their investment portfolio in the year they retire.
Withdraw 4% of that portfolio value in the first year of retirement.
Increase that withdrawal each year for inflation.
Interestingly, Bengen’s original calculations actually showed 4.15% as the true safe withdrawal rate, but it was later rounded down to 4%, and that number stuck.
Example of the 4 Percent Rule
Let’s look at a quick example.
John retires at age 66 with a portfolio valued at $2.5 million.
Year 1 withdrawal: 4% of $2.5M = $100,000
If inflation the following year is 2%, he increases his withdrawal:
Year 2 withdrawal: $102,000
This process continues each year, increasing withdrawals based on inflation, similar to Social Security cost-of-living adjustments.
Your Investment Allocation Matters
When Bengen originally introduced the 4% rule, it was based on a retirement portfolio consisting only of:
U.S. large-cap stocks
Intermediate-term government bonds
Since then, his investment philosophy has evolved to include broader diversification, which helps improve portfolio stability and long-term success.
His updated model includes:
U.S. large-cap stocks
U.S. mid-cap stocks
U.S. small-cap stocks
U.S. micro-cap stocks
International stocks
Intermediate-term U.S. government bonds
U.S. Treasury bills
Today, investors can achieve this diversification easily through low-cost ETFs.
Why Diversification Is Important
Each asset class performs differently in various market cycles. Large-cap stocks may underperform in a given year, while small-cap or international stocks may outperform during the same period of time.
Diversification helps to:
Maximize long-term growth
Reduce downside risk
Prevent overexposure to one asset class
A good retirement portfolio should:
Provide broad diversification
Match your risk tolerance
Be rebalanced annually
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Changes to the 4 Percent Rule
Over time, William Bengen updated his research and conclusions.
Updated Withdrawal Rates
1994: 4.0% rule introduced
2006: Updated to 4.5%
Recent research: Updated again to 4.7%, which he calls SAFEMAX
Bengen re-ran his original research and stress-tested approximately 400 historical retirement scenarios. Only one scenario required a withdrawal rate as low as 4.7% to make the portfolio last 30 years.
Because of this, he now states that 4.7% is essentially the worst-case scenario withdrawal rate, not the standard withdrawal rate most retirees should use.
He has even suggested that many retirees today may be able to withdraw between 5.25% and 5.5% without significantly increasing the risk of running out of money.
He also made an important point:
If you withdraw less than necessary, the odds are very high that you will end retirement with a large pile of money — and a matching pile of regret for not having spent more during your retirement years.
Reassessing Your Withdrawal Rate Over Time
One of the biggest changes in Bengen’s philosophy is that retirees should not use a set-it-and-forget-it withdrawal strategy.
Instead, retirees should review their withdrawal rate regularly.
He recommends reviewing withdrawals at least every couple of years, though many advisors review them annually.
When to Adjust Withdrawals
If the portfolio is growing faster than expected → You may be able to increase withdrawals.
If the portfolio is underperforming → You may need to temporarily reduce withdrawals.
This flexible approach helps portfolios last longer and prevents overspending or underspending.
When Retirees Should Consider Cutting Back Withdrawals
Many people assume that retirees should cut withdrawals during market downturns. However, under Bengen’s framework, market volatility is not the biggest threat.
Historically, bear markets have typically recovered within one to two years, and a properly diversified portfolio is designed to withstand those downturns.
The Real Threat: Inflation
The biggest danger to retirement withdrawals is sustained high inflation.
For example, from 1970 to 1980, the average annual inflation rate was approximately 8.32%.
Under the traditional 4% rule — where withdrawals increase annually with inflation — retirees would have had to increase withdrawals by about 91.5% over just 11 years.
That level of compounding inflation can put significant strain on a retirement portfolio.
Short inflation spikes can often be absorbed, but prolonged inflation requires retirees to reduce spending to protect their portfolios.
This is why retirees should:
Maintain a disciplined retirement budget
Be willing to adjust spending when necessary
Review withdrawal rates regularly
Final Thoughts on the Updated 4% Rule
William Bengen, now in his late 70s and navigating his own retirement, appears to have shifted toward a more flexible withdrawal philosophy that adjusts with market conditions and inflation.
This approach aligns with what many financial planners now recommend — a dynamic withdrawal strategy rather than a fixed withdrawal rate.
Dynamic withdrawal strategies help ensure:
You don’t underspend and leave excessive unused wealth
You don’t overspend and run out of money
Withdrawals adjust based on market performance and inflation
One popular version of this strategy is the Guyton-Klinger guardrails withdrawal strategy, which sets upper and lower limits on withdrawal percentages and adjusts spending when those limits are reached.
Key Takeaways
Here are the most important points retirees should understand about the updated 4% rule:
The original 4% rule was based on historical market data from 1994.
William Bengen now considers 4.7% the worst-case withdrawal rate, not the standard rate.
Many retirees may be able to safely withdraw 5% or more, depending on their situation.
Withdrawal rates should be reviewed regularly — not set once and ignored.
Inflation is a bigger risk to retirement withdrawals than market volatility.
A flexible withdrawal strategy is often more effective than a fixed withdrawal strategy.
Final Retirement Planning Thought
Retirement income planning is not just about choosing a withdrawal percentage. It involves:
Investment allocation
Inflation planning
Tax planning
Withdrawal strategy
Spending flexibility
The most successful retirement plans are dynamic and adaptable, not rigid.
If you build flexibility into your retirement income plan, you dramatically increase the likelihood that your money will last — while also allowing you to enjoy retirement along the way.
Determining an appropriate investment allocation and withdrawal strategy are two of the many factors that go into a comprehensive financial plan, a process we regularly help our clients through at Morrissey Wealth Management. To see if working with a Fiduciary financial advisor is right for you, click below!
Have a great week—and I’ll talk to you next Friday.
Written by Ryan Morrissey CFP®, CLU®, CHFC®, CMFC
Founder & Principal Advisor of Morrissey Wealth Management
Host of the Retire with Ryan Podcast