Popular Retirement Rule May Change: How Will This Affect Your Spending?
Written by
Chris Adam
Edited by
Zuri Anderson
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The popular retirement strategy known as the “4% rule” may need some adjusting going forward. Some researchers and financial experts are warning changes may be needed based on market conditions and other factors.
GOBankingRates asked some financial experts for their views on the “4% rule” and how to weather changing market conditions while keeping your retirement spending and saving on track.
Changing the Rule
If you’re unfamiliar with the rule, it’s basically a guideline to help retirees know how much money they can take annually from their accounts and still feel good they won’t run out of it.
“According to the strategy, retirees tap 4% of their nest egg the first year. For future withdrawals, they adjust the previous year’s dollar figure upward for inflation,” per CNBC.
According to Morningstar research, that “safe” withdrawal rate declined to 3.7% in 2025.
Looking at Market Trends
“The traditional 4% withdrawal rule that has been in use for years may no longer be viable, as indicated by the recent market trends in Morningstar’s most recent reports showing lower anticipated returns,” said Adam Garcia, a certified financial planner and founder of The Stock Dork. “A couple I recently engaged with adjusted their spending plan by employing a flexible withdrawal strategy.”
Garcia said rebalancing portfolios based on risks associated with the given markets and personal financial preferences will help ensure retirees aren’t derailed. He added that retirees may improve their strategies according to changing economic circumstances by providing a choice for flexibility and diversification.
Changing Savings and Investments
“The idea of withdrawing 4% annually to stretch your savings over 30 years worked well in past decades with higher average market returns and lower inflation,” said Shirley Mueller, finance expert and founder at VA Loans Texas. “New retirees might need to lower that percentage — closer to 3.3% — to avoid prematurely depleting their savings.”
According to Mueller, one strategy that has been helpful for clients is to create spending buckets. You would divide your withdrawals into essential expenses and discretionary ones. By focusing on covering the essentials first, Mueller advised, retirees can adjust discretionary spending in leaner market years without jeopardizing their financial security.
“On the investment side, I’ve seen too many retirees shy away from equities, focusing solely on fixed-income assets like bonds,” she said. “While bonds provide stability, the low-yield environment we’re in makes them less effective at outpacing inflation.”
Mueller added that retirees should consider a diversified portfolio that balances growth and preservation, such as a mix of dividend-paying stocks, high-quality bonds and perhaps even low-cost index funds.
Further, the financial expert said that it’s important to maintain one to two years’ worth of living expenses in cash or liquid assets. This strategy can prevent you from needing to sell investments during a downturn.
Mueller noted that flexibility is key and can be achieved by adjusting your approach regularly, staying informed and working closely with a financial advisor to weather changes and not compromise the long-term goals you have set for yourself.
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