Core Insights - The 4% rule of retirement is a conservative guideline that allows retirees to withdraw 4% of their savings annually, adjusted for inflation, to ensure funds last for 30 years [3][5][6] - Morningstar's recent research suggests modifications to the 4% rule, enabling retirees to withdraw more than 4% safely [2][10] Summary by Sections 4% Rule Overview - The 4% rule was established by Bill Bengen in 1994, based on historical stock and bond market performance, allowing retirees to spend 4% of their savings annually with minimal risk of depleting funds [3][4] - Morningstar's report indicates that a retiree in 2025 can safely withdraw approximately 3.9% annually, maintaining a 90% chance of lasting 30 years [5] Critique of the 4% Rule - The 4% rule is considered conservative, potentially leaving retirees with significant savings after death, which may not align with all retirees' goals [8] - Many Americans aged 55-65 have limited retirement savings, averaging around $185,000, leading to a withdrawal of only $7,400 per year under the 4% rule [9] Proposed Modifications - Morningstar suggests several strategies to enhance the 4% rule: - **Actual Spending**: Start with a 5% withdrawal rate, adjusting for inflation and reducing by 2% annually [13] - **Forgo Inflation**: Maintain a 4.3% withdrawal rate by skipping inflation adjustments in down years [14] - **Guardrails**: Adjust spending based on market performance, allowing for a starting rate of 5.2% [16] - **Constant Percentage**: Withdraw a consistent percentage each year, starting at 5.7% with a spending floor [17] - **Endowment Method**: Use a 10-year average of portfolio value for withdrawals, also starting at 5.7% [18] - These strategies enable retirees to spend more while remaining flexible with their withdrawals [19]