Why new retirees may need to rethink the 4% rule

cnbc.com:

A popular retirement strategy known as the 4% rule may need some recalibration for 2025 based on market conditions, according to new research.

The 4% rule helps retirees determine how much money they can withdraw annually from their accounts and be relatively confident they won't run out of money over a 30-year retirement period.

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.

But that «safe» withdrawal rate declined to 3.7% in 2025, from 4% in 2024, due to long-term assumptions in the financial markets, according to Morningstar research.

More from Personal Finance:
The best tax bracket for a Roth IRA conversion
Senate plans to vote on Social Security bill for some pensioners
The 'vibecession' is over as optimism gains steam

Specifically, expectations for stock, bond and cash returns over the next 30 years declined relative to last year, according to Morningstar analysts. This means a portfolio split 50-50 between stocks and bonds would have less growth.

While history shows the 4% rule is a «reasonable starting point,» retirees can generally deviate from the retirement strategy if they're willing to be flexible with annual spending, said Christine Benz, director of personal finance and retirement planning at Morningstar and a co-author of the new study.

That may mean reducing spending in down markets, for example, she said.

«We caution, the assumptions that underpin [the 4% rule] are incredibly conservative,» Benz said. «The last thing we want to do is scare people or encourage people to underspend.»

In many ways, drawing down one's nest egg is harder than growing it.

Pulling out too much money