Here's Why This Popular Rule of Thumb Won't Work for My Retirement Savings

There are many people who enter retirement without a lot of money in savings. I'm hoping not to be one of them.

I'm working very hard to contribute steadily to my retirement account in the hopes of not having to endure financial stress later in life -- and also, as a backup plan, given Social Security's shaky future. And because of that, I want to make sure my money lasts.

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That's why I don't intend to tap my nest egg aimlessly without a plan. Rather, I want a strategy. And the 4% rule is a popular one a lot of older people use to manage their nest eggs.

The 4% rule says that if you withdraw 4% of your savings in your first year of retirement and adjust future withdrawals for inflation, your money has a very strong chance of lasting for 30 years. Financial professionals have long recommend using the 4% rule for this reason. But I'm pretty convinced it won't work for me. Here's why.

My main problem with the 4% rule

Some people might say that the 4% rule is too aggressive for today's interest rate environment (though not unreasonably so). In fact, Morningstar estimated 3.7% as an optimal retirement withdrawal rate in 2024 due to how bond yields were trending at the time, which isn't so far off from 4%.

But my issue with the 4% rule isn't the specific percentage so much as the rigidity. And that's why it's a rule I don't plan to follow.

The 4% rule does allow for inflation-related adjustments, which is important -- even Social Security benefits have those. But I don't like the idea of having to stick to roughly the same withdrawal rate throughout my retirement. And that's because I don't necessarily expect my spending to be linear.

A lot of older people spend more money in the earlier stages of retirement, when they're eager to get out and travel. And a lot of people also spend more money later on in retirement, when they need to pay for care or renovate their homes to allow for aging.

But there's often a period during retirement when spending tends to decline. And the 4% rule doesn't really allow for those fluctuations. Instead, it locks you into the same withdrawal rate over what could be a 30-year period, despite the fact that your needs might change pretty notably during that long a time frame. And for that reason, I'm just not a fan.

How I plan to manage my retirement savings

Since I'm working so hard to save money for retirement, I want my nest egg to serve my needs well. To that end, I intend to work with a financial advisor to adjust my withdrawal rate regularly based on my requirements and goals.

That could mean withdrawing at a rate of 4% some years, or even most years. And if things work out that way, great.

But I want my withdrawal strategy to be more fluid than the 4% rule. And you may decide that you want to do something similar. In that case, I recommend talking to a financial advisor and coming up with a plan that works for you based on your investment mix, life expectancy, and personal goals.

The 4% rule may be a good general rule of thumb to follow, but it's hardly a personalized one. But as people, we all have unique needs. And I'm a firm believer that your retirement withdrawal strategy should reflect that.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.