In 1994, financial advisor Bill Bengen came up with a retirement principle called the 4% Rule. His idea went viral.
Now, Bergen’s law is getting an update.
The 4% rule says you should plan to spend 4% of your savings in the first year of retirement, and the same amount adjusted for inflation each year thereafter.
It became popular because it’s a simple formula for solving a complex problem: how to fund your retirement.
The 4% rule has drawn praise and condemnation over the years. Now, Bengen says it’s time for a revision: The 4% rule has become the 4.7% rule.
The amendment reflects both the strengths and weaknesses of the original 4% rule.
This rule is one of the most famous concepts in personal finance, brilliant in its simplicity.
“It’s lasted a long time because it’s memorable and it makes a very complex human problem more manageable,” said Rob Williams, managing director of financial planning at Charles Schwab, speaking to USA TODAY in 2025.
But some retirement experts say the rule is a little too simple. This was in an era when many savers put half their money in stocks and half in bonds, the allocation that Bengen used to formulate his basic rule.
Nowadays, financial advisors often recommend that retirement savers diversify across a long list of “asset classes,” which can include a variety of stocks and bonds, real estate, cash and cash-equivalents. And fewer investors put half their money in the bond market.
How did the 4% rule become the 4.7% rule?
The 4% rule began in 1994 when Bengen wrote some math in a paper for the Journal of Financial Planning. If retirees started out with that rate of spending, their savings would last 30 years, Bengen argued. (The actual figure was 4.15%. They rounded it off.)
The rule came into effect, surprising even its author.
“It’s unrealistic,” Bengen told USA TODAY in 2025. “I can’t believe I’m still doing this 30 years later.”
Bengen has continued to refine the rule along with his investing habits. Thirty years ago, his research focused on an equal mix of US government bonds and large company stocks. Today, he works with broad investment portfolios, including stocks of large, medium and small companies, international stocks, bonds and Treasury bills.
“I’m now up to seven asset classes,” he said.
Bengen’s calculations now assume a slightly less conservative mix of 55% stocks, 40% bonds and 5% cash.
The broader portfolio coupled with strong stock performance in recent years changed the math for Bengen’s rule. For a new book he set a rule of 4.7%.
“The primary reason for the change is that my research has become more sophisticated,” he said.
Bengen more or less practices what he preaches. When he retired in 2013, he followed an updated version of his own rule, spending 4.5% of his savings in the first year.
“And it turned out to be much more conservative,” he said. “Since the stock market has done so well, I’ve been able to make upward adjustments.”
He is now spending 4.9% per year.
Is the 4% rule still valid?
The 4% rule remains ubiquitous in financial planning. It is also the subject of endless criticisms in articles that question whether the rule still works or suggest that it may no longer apply to most of us.
“4% was a general rule of thumb, but the reality is that people really have to look at what it’s costing them in retirement, or what they want to be,” Caleb Silver, editor-in-chief of the financial journalism site Investopedia, said in a 2025 interview.
Schwab’s Williams said the 4% rule remains “a good place to start.” But a modern retirement plan, he said, is a living document. Retirees and their advisors can update spending goals each year based on life changes, investment returns, inflation and other factors.
“For most of the people I talk to, their spending patterns 20 to 30 years after they retire are not static. They’re dynamic,” said Douglas Ornstein, director of TIAA Wealth Management, speaking to USA TODAY in 2025.
One reason for the enduring popularity of the 4% rule is that it reflects the paramount fear of Americans approaching retirement: running out of their money. A recent survey by Allianz Life shows that we fear running out of money more than dying.
“As humans, when we’re faced with complex challenges, like how much do we spend in retirement, it’s a scary question,” Williams said.
Many retirees follow the 4% rule. Some people misunderstand this.
Many retirees follow Bengen’s law literally.
“I know some people take it literally, because I get emails every day from people everywhere,” Bengen said.
Not everyone likes the rules. Some retirees mistakenly think their goal is to spend exactly 4% of their savings each year, Bengen said.
Here’s how the basic rule actually works:
If you retire with $500,000 in savings, you spend $20,000 in the first year to supplement Social Security and any other income. If the inflation rate is 3%, you spend $20,600 in the second year. And so on.
Here’s another problem with the 4% rule: It seems to work better for the affluent.
According to the 2022 Survey of Consumer Finances, the typical American aged 55 to 65 has household retirement savings of about $185,000.
Apply the 4% rule to $185,000 and you’ll get $7,400 per year: not much money.
“There are a lot of families who have no retirement savings,” Amy Arnott, a portfolio strategist at Morningstar, said in an interview.
Bengen’s law is conservative. He designed it to cover retirees in every economic scenario, with a spending rate that ensured savings would last until retirement.
The rule “is based on research that tried to find the worst-case scenario among all retirees over the last 100 years,” Bengen said. “I think some retirees, a lot of retirees, should probably be spending more.”