Will Your Retirement Savings Last? New Research Questions the 4% Rule

A 65-year-old American has a 50% chance of living to age 85. This has experts taking a closer look at what helps retirement plans last for 20 years or more.

For decades, the “4% rule” has been one of the most popular retirement planning guidelines. The rule suggests withdrawing 4% of your retirement savings in the first year of retirement, then adjusting that amount for inflation each year after.

But new research suggests that approach may not provide enough protection for people who live longer than expected. A study found that retirees following a traditional withdrawal strategy face about a 5% chance of running out of money by age 85. The risk more than doubles to 12% by age 90 and 24% by age 95.

Creating Income that Lasts

That’s an important reminder that retirement planning isn’t just about building savings. It’s also about creating income that can last as long as you do.

A CNBC article highlighted new research that examined different ways retirees can turn their savings into income. The study compared the traditional 4% rule, converting all savings into an annuity, and strategies that combine investments with guaranteed lifetime income.

Their conclusion? Retirees may not need to choose between keeping all of their money invested or converting all of it into guaranteed income. The research found that a middle-ground approach, referred to as partial annuitization, delivered the strongest overall results. By using a portion of retirement savings to purchase guaranteed lifetime income and keeping the remainder invested, retirees were able to balance income security, flexibility, and growth potential. The study’s clearest takeaway is that retirement income planning does not have to be an all-or-nothing decision. This hybrid approach of partial annuitization outperformed both the traditional 4% withdrawal strategy and full annuitization. It can provide retirees with a paycheck guaranteed to last for life, while maintaining access to savings for unexpected expenses and allowing their nest egg to grow over time.

Social Security and Your Retirement Plan

The report also found that using an annuity to delay taking Social Security benefits can increase retirement income for many people. Because monthly Social Security benefits generally increase each year claiming is delayed up to age 70, waiting can create a larger source of guaranteed income later in retirement.

The bigger lesson is that there may not be a one-size-fits-all retirement strategy. A rule of thumb can be a helpful starting point, but retirement decisions should also consider factors like longevity, market volatility, guaranteed income sources, and personal spending needs.

Retirement isn’t just about how much you’ve saved. It’s about having a plan for turning those savings into reliable income for the years ahead.

Learn More

Understanding how Social Security, personal savings, and sources of guaranteed lifetime income work together may help you create a retirement strategy that can stand the test of time. We explore these themes in our latest blogs: