Can You Still Trust the 4% Rule in 2025?

The quick scan: Wall Street ended the week in the red, snapping a multi-day winning streak as investors weighed mixed economic data and cautious comments from the Fed.

S&P 500: slipped 0.8% to 5,435, dragged lower by tech and consumer discretionary.
Dow Jones: down 0.6% to 39,210, with losses in financials and healthcare.
Nasdaq: fell 1.1% to 16,875, led by a pullback in mega-cap tech.

What’s driving it: Rising oil prices and a hotter-than-expected producer price index kept inflation worries alive. Meanwhile, Treasury yields ticked higher, adding pressure on rate-sensitive sectors.

Bottom line: Markets remain in a tug-of-war between hopes for rate cuts later this year and stubborn inflation data. Volatility is likely to stick around — and retirees eyeing withdrawal rates should take note.

The 4% Rule, Revisited

The Scoop: If there’s a “golden rule” of retirement planning, the 4% Rule is it. Bill Bengen, a financial planner, first introduced it in 1994. After studying historical market returns — including the Great Depression and stagflation of the 1970s — he concluded that a retiree could withdraw 4% of their portfolio in the first year of retirement, adjust that dollar amount for inflation each year, and reasonably expect their money to last 30 years.

For decades, this became the foundation of financial planning conversations. Advisors cited it. Retirement calculators built it in. Personal finance books practically canonised it. It was simple, easy to remember, and comforting: one number to hold onto in an uncertain future.

But here’s the problem: the world of 2025 doesn’t look much like the world of 1994.

What’s Changed Since the ’90s

• Interest rates: Back then, retirees could count on government bonds yielding 6–7%. Today, bond yields have been volatile and generally much lower, reducing the cushion fixed income once provided.

• Lifespans: People are living longer. A 65-year-old today can easily expect 25–30 more years, sometimes more — stretching the withdrawal horizon.

• Market valuations: U.S. equities have enjoyed long bull runs, but high valuations raise the risk of lower forward returns.

• Healthcare costs: Particularly in the U.S., these have ballooned, making the “average retiree” expenses far higher than when Bengen ran his numbers.

• Global retirees: The 4% Rule was based on U.S. market history. Retirees in Singapore, Malaysia, or Europe may face different inflation, returns, and safety nets.

In other words, the foundation is shakier than it used to be.

Bengen’s Update

Interestingly, Bengen himself has adjusted his stance. In interviews, he’s noted that the 4% rule is still a useful guideline, but it’s not a guarantee. Market conditions matter, and sticking rigidly to 4% regardless of what’s happening in the world could be risky.

Instead, he suggests retirees think more flexibly:

• Dynamic withdrawals: If markets do well, you can raise your spending. If they stumble, tighten the belt temporarily.

• Guardrails: Approaches like Guyton-Klinger put upper and lower “spending guardrails” around your withdrawals so you never veer too far off course.

• Personal context: A retiree in Kuala Lumpur with low housing costs and family support has a very different safe withdrawal rate than one in California with high medical bills.

Why It Still Matters

Even with its flaws, the 4% rule remains powerful because it provides a starting point. Without it, many people wouldn’t even know how much to save, or how to gauge whether they’re on track.

Think of it as a compass. It points north. But if you want to get to a specific destination, you’ll still need a map, road signs, and maybe even Google Maps rerouting when there’s traffic.

Actionable Takeaways for L-Plate Retirees:

• Treat 4% as a benchmark, not a promise. Use it to plan, but don’t lock yourself in.

• Stress test your plan. Run scenarios at 3%, 3.5%, and 5% withdrawal rates. How does your plan hold up?

• Think beyond investments. Add in Social Security, CPF, pensions, annuities, rental income, or part-time work to diversify your retirement “pay check.”

• Plan for flexibility. Consider “guardrail” strategies: take a bit more when times are good, pull back slightly when markets drop.

• Localise your plan. Healthcare, housing, and cost of living vary widely by country — make sure your numbers reflect your reality, not just U.S. data.

• Revisit often. Life happens. Markets shift. Health changes. Check your withdrawal strategy every year — it’s a living plan, not a set-and-forget.

Your Turn:
Do you feel the 4% rule still works for your retirement, or does it feel outdated?
If you had to cut spending in a down market, what would be the first area you’d trim?
What’s your “Plan B” if markets deliver lower returns than expected?

👉 Hit reply and share your thoughts — your answers could inspire fellow readers in future issues.

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