Can Retirees’ 4% Rule Be Cut Back Or Delayed?

While an expert warns today’s spiraling inflation may make the old “4% Rule” for retirees outdated, it may also give them higher stock returns, a record 8.9% Social Security check hike AND yield bigger sales price for fam’s home, if downsizing is a comfortable option … the devil on what to do, he suggests, may be in the details …

First, the bad news from the creator of that 4% Rule saying that’s the amount retirees should plan on withdrawing each year from savings to live comfortably for another 30. According to Bill Bengen in the WSJ, “the combination of high inflation and high market valuations could require revisions to the rule of thumb.” He now recommends “retirees take a less aggressive approach to drawing down their nest eggs, at least, until we determine whether the current surge in prices that has been particularly stressful to those on fixed incomes is a long-term trend or a short-term blip.”

Then, again, “inflation” can be a double-edged sword, dramatically driving up food, transportation and health care costs, while increasing investment returns (assuming one’s chosen investment is a “winner” making money & not a “loser” losing it). “The problem is there’s no precedent for today’s conditions,” Mr. Bengen said. That worry “echoes a recent report from Morningstar Inc. recommending a 3.3% initial withdrawal rate for those retiring today who also want spending to keep pace with inflation over 3 decades & a high degree of certainty their money will last.” Could some folks with higher life-time earnings possibly DELAY that first-year withdrawal, i.e., if that Social Security increase of 8.9% happens as expected (& esp. if the homestead is sold)?

Davd soul