MML #044: The 4% Rule Is Broken—Here’s What Its Creator Says Now

If you've done even casual retirement planning research, you've probably run into the 4% rule. Take your nest egg, withdraw 4% in year one, adjust for inflation annually, and you're good for 30 years. Simple. Clean. Wrong.

Well, not entirely wrong. But increasingly incomplete.

Here's what caught my attention a few weeks back. William Bengen, the aerospace-engineer-turned-financial-planner who created the 4% rule back in the 1990s, just published a new book revising his own work. He now says the number should be 4.7%. And what may be more interesting is that his research shows the average safe withdrawal rate over the past century has been around 7%.

Think about that gap for a second. If you're sitting on a $2 million portfolio and rigidly following the 4% rule, you're pulling out $80,000 annually. At 7%, that's $140,000. Over a 30-year retirement, we're talking about a difference of $1.8 million in total withdrawals before adjusting for inflation or investment growth.

Talk about leaving money on the table! Nothing wrong with a planned legacy, but a lot of retirees are trying to maximize their nest egg in their lifetime.

The Problem With Rules of Thumb

Don't get me wrong. The 4% rule serves a purpose. It's fantastic for back-of-napkin calculations when you're sitting in your office between client meetings, trying to figure out if retirement is even feasible. 

I use it on the golf course when a buddy needs a ballpark answer. It gives you a baseline, a starting point for the conversation.

But here's where attorneys often get tripped up: you're trained to dig into details, to find the nuances that matter. Yet when it comes to your own retirement, many of you stop at a rule designed for the person who, in Bengen's words, "doesn't want to be worried about anything that may occur."

The 4% rule is built for maximum safety and minimum thought. 

It gives brownie points for the worst-case scenario. 

And if markets perform better than those worst-case assumptions (which they have for most of the past several decades), you end up leaving massive amounts of money on the table.

Or more accurately, in your account. Unspent. While you postpone travel, delay helping your kids, or skip experiences because you're worried about running out.

What Actually Determines Your Safe Withdrawal Rate

Bengen now outlines ten variables that shape a truly safe withdrawal plan. Eight are within your control: your withdrawal strategy, asset allocation, retirement timeline, and legacy goals among them. The other two, stock market valuation and inflation, are not.

This is where sophisticated planning tools come in. Monte Carlo simulations don't give you a single number. They run thousands of scenarios based on historical market behavior, showing you the probability of success under different withdrawal strategies. You might discover you have a 70% chance of success at 5.5% withdrawals, or that you could spend significantly more in your early retirement years when you're most active.

Income guardrails take this further. Instead of locking you into a fixed inflation-adjusted amount, they establish upper and lower boundaries for your spending. When markets are strong, you spend more. When they decline, you temporarily pull back. This approach typically allows for higher average spending while maintaining safety.

These adjustments can be the difference between a retirement spent worrying about every dollar and one where you actually enjoy the wealth you've built.

The Lawyer-Specific Challenge

Here's the part that hits different for attorneys: you've likely started saving later than other professionals, thanks to law school debt and delayed earnings. You've also probably experienced significant lifestyle inflation as your income grew. Many of you are looking at retirement with less runway than the 4% rule assumes (30 years).

You can't afford to be overly conservative. But you also can't afford to get this wrong.

That's why the 4% rule is particularly dangerous for lawyers. It provides just enough structure to feel safe while potentially costing you hundreds of thousands in unrealized retirement spending. You're leaving money in your estate that could have funded the life you actually wanted to live.

Getting It Right

Bengen himself now says that most people will benefit from professional help with this. I'd go further: if you're serious about maximizing your retirement, the 4% rule should be your starting point, not your ending point.

A proper withdrawal strategy considers your specific circumstances: when you're retiring, current market valuations, your health and longevity expectations, your legacy goals, and most importantly, how you actually want to spend your time.

The math matters. But more than that, the difference between getting this roughly right versus precisely wrong could be the difference between the retirement you've imagined and the one you're forced to settle for.

The 4% rule isn't bad. It's just incomplete. And incomplete planning has a cost, even if you never see the bill.