Investing: The 4% Rule is Dead

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“The 4% Rule as a safe withdrawal rate in retirement is dead.” So says the Financial Samurai blog.

The 4% rule tells retired people to calculate 4% of their savings and withdraw only that much to live off of per year, leaving the rest of their nest eggs in savings vehicles in order to keep growing. This assumes a fairly robust savings vehicle for the rest, however, and The Financial Samurai says that is not a safe assumption.


The 4% rule was calculated by professors in 1998 when the 10-year bond yield averaged 5%. That meant that if you withdrew 4%, you’d still be growing by 1%. That is no longer the case, given that the 10-Year bond yield is below 1%. By this logic, retirees should only be withdrawing less than 0.8% in order to keep 0.2% growing. The Financial Samurai actually suggests an even more conservative 0.5%. That’s quite a pay cut for retirees!

What now?

So what does this mean in actual numbers for a savings goal in order to follow this rule? It is not pretty so brace yourself. If you want to retire on $40,000 per year, which is by no means comfortable in most urban areas, you have to accumulate $8 million in savings in order to follow this rule. If you want to live off of $300,000 per year based on this withdrawal rule…well, you might have to rob a bank.

This is why we don’t subscribe to the nest egg method of retirement planning. We instead prefer investing in a nest goose by way of rental real estate. You cannot save your way to wealth. You can only invest in cash-flowing assets that create your monthly wealth. Or, try to save $8 million to live off of $40,000 per year. It’s depressing just to type that.

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