Suze Orman says the 4% retirement rule is 'very dangerous' — while its creator Bill Bengen now says it's too conservative. What's the new golden number for your golden years? (2024)

Bethan Moorcraft

·5 min read

Suze Orman says the 4% retirement rule is 'very dangerous' — while its creator Bill Bengen now says it's too conservative. What's the new golden number for your golden years? (1)

How much money should you withdraw from your retirement savings each year to live out your golden years in comfort?

It’s a question weighs heavily on the minds of many Americans who are in or nearing retirement, and the answer can change depending on who you ask.

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For years, financial planners and retirees have relied on the “4% rule” — coined in 1994 by financial adviser and author Bill Bengen — which states retirees should plan to withdraw 4% of their assets every year, increasing or decreasing that distribution annually based on inflation.

But in today’s challenging economic climate where Americans are tired of battling high inflation, interest rate hikes, market volatility and other challenges, the feasibility of the 4% rule has been called into question by some experts — including personal finance expert Suze Orman.

“It doesn't work anymore,” she told Moneywise in a May 16 interview. “I think it's very dangerous.”

Orman shared how much money she thinks you should withdraw each year in retirement — and it differs from the most recent figure given by Bengen himself.

Here’s what you need to know to figure out what withdrawal strategy works best for you.

Orman's alternative to the 4% rule

The money maven says she would “not be using the 4% rule on any level.”

Why? Because there’s no way to predict what’s going to happen once you are actually living the retired life, she explains.

Economic volatility could change the cost of living to the extent that 4% doesn’t meet your needs. There could be stock market swings that impact the value of your retirement portfolio, or further interest rate hikes that make any debt or loans that you hold more expensive.

You could face personal challenges like a health problem that requires a big pile or steady stream of cash. The uncertainties are endless, which is why Orman advises Americans to “take the least amount possible out of retirement accounts.”

Orman says the less money you withdraw each year, the “better off you are.”

Watch now: Full interview: Suze Orman and Devin Miller of SecureSave delve into why so many Americans aren't prepared for their next financial emergency

If you need a percentage target to hit, Orman suggests you only withdraw up to 3% of your nest egg each year.

At the same time, she encourages Americans to “work until at least 70 or longer, so that your assets have more of a chance to build up” and delay taking Social Security benefits until the age of 70 so that you receive the maximum monthly sum.

“Stop this: 'Oh, I'm going to retire at 60. I'm going to start claiming Social Security at 62,’” she said.

Read more: 'It's not taxed at all': Warren Buffett shares the 'best investment' you can make when battling inflation

The 4% rule creator says the opposite

Bengen based his retirement rule on several decades worth of statistics on retirement spending and stock and bond returns, which showed that retirees could reasonably expect their funds to last 30 years or longer if they withdrew about 4% from their nest eggs per year once they officially retire.

But he’s recently been compelled to revisit and update the rule given the current economic climate.

That’s because his original research only included two asset classes: Treasury bonds and large-cap stocks. When he added a third class, small-cap stocks, he said 4.5% would be a safe withdrawal rate.

But now, factoring in the impact of sky-high inflation, Bengen has argued that 4% might not cut it. In an appearance on the Bogleheads Live podcast in December 2022, Bengen revealed he’s upped his own withdrawal rate to 4.7% — quite different to Orman’s 3% target.

“My 4% rule was actually based upon a worst-case situation,” he said. “An investor who retired in October of 1968 who ran into just a terrible, perfect storm of bad stock market results and very high inflation, which forces withdrawals up every year.

“Are we in a similar period beginning with this year with very high inflation and potentially low stock market returns? Entering something even worse? I don't know, unfortunately. And we won't know for quite a few years.”

If the contrast between Bengen and Orman proves anything, it’s that your retirement withdrawal strategy is going to vary depending on your finances, assets and lifestyle.

Everyone’s situation is different. While a percentage rule might be a good starting point for planning, you may want to tweak it to suit your situation.

If you’re unsure what retirement strategy will work best, consider working with a financial adviser who can help you navigate your specific financial needs for the future.

With files from Sigrid Forberg

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Suze Orman says the 4% retirement rule is 'very dangerous' — while its creator Bill Bengen now says it's too conservative. What's the new golden number for your golden years? (2024)

FAQs

What does the 4% retirement rule say? ›

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 money last using 4% rule? ›

This rule is based on research finding that if you invested at least 50% of your money in stocks and the rest in bonds, you'd have a strong likelihood of being able to withdraw an inflation-adjusted 4% of your nest egg every year for 30 years (and possibly longer, depending on your investment return over that time).

What is the safest retirement withdrawal rate? ›

When bond yields were essentially zero accounting for inflation, the safe withdrawal rate decreased, but now that bond yields have risen for nearly two years, it is back to its baseline level. Late last year, research firm Morningstar affirmed 4% as the safe withdrawal rate, up from 3.8% in 2022 and 3.3% in 2021.

What is the Bengen rule? ›

Known as the 4% rule, Bengen argued that investors could safely set their annual withdrawal rate to 4% of their initial retirement pot and adjust it for inflation without running out of money over a 30-year time horizon.

How long will $1 million last in retirement? ›

Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.

How many people have $1000000 in retirement savings? ›

However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

How long will $900 000 last in retirement? ›

Yes, it is possible to retire very comfortably on $900k. This allows for an annual withdrawal of around $36,000 from age 60 to 85, covering 25 years. If $36,000 per year or $3,000 per month meets your lifestyle needs, $900k should be plenty for retirement.

What is the average 401k balance for a 65 year old? ›

Average and median 401(k) balances by age
Age rangeAverage balanceMedian balance
35-44$76,354$28,318
45-54$142,069$48,301
55-64$207,874$71,168
65+$232,710$70,620
2 more rows
Mar 13, 2024

Can I retire at 62 with $400,000 in 401k? ›

If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.

Does the 4 percent rule include Social Security? ›

Additionally, the 4% rule doesn't consider other income sources such as pensions, Social Security, annuities or part-time work and income. “Consequently, depending on your situation, you may not need a 4% withdrawal rate to generate your desired retirement income,” Fricke notes.

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

If the individual retires at age 65, that percentage is typically 5% for a single life and 4½% on a joint and survivor basis; the percentages go up to 6% and 5½% if the retirement age is 70.

What is Fidelity's 45% rule? ›

Fidelity's 45% rule states that you should plan to save and invest enough to replace at least 45% of your preretirement income. This rule assumes that you retire at age 67 and have no pension income, other than Social Security.

What is rule 100 in retirement? ›

Simply subtract your age from the number 100, and what's left is the percentage of money that should be in those types of investments.

How to retire on $400,000? ›

With $400,000, if you buy an annuity at age 62 and then retire, you might expect monthly payments of around $2,400 for the rest of your life. This comes to about $28,800 per year in guaranteed income according to one estimate.

Why the 4 rule no longer works 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.

Does the 4 retirement rule include Social Security? ›

Additionally, the 4% rule doesn't consider other income sources such as pensions, Social Security, annuities or part-time work and income. “Consequently, depending on your situation, you may not need a 4% withdrawal rate to generate your desired retirement income,” Fricke notes.

What is a good monthly retirement income? ›

Average Monthly Retirement 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 much money do you need to retire with $100000 a year income? ›

So, if you're aiming for $100,000 a year in retirement and also receiving Social Security checks, you'd need to have this amount in your portfolio: age 62: $2.1 million. age 67: $1.9 million. age 70: $1.8 million.

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