Is 4% Still The Rule of Thumb?

What if the most important number in your retirement plan isn’t your average return but the order of your returns? We dig into the real mechanics of “safe” withdrawals—why the famous 4% rule became a staple, how William Bengen’s updated 4.7% changes the picture, and where a conservative 3% mindset fits for those who value longevity protection over maximum income. Along the way, we translate the math into plain English and show what these percentages mean for an everyday income gap.

We walk through clear examples: how a $40,000 annual gap could require $1.33M at 3%, $851K at 4.7%, or potentially much less capital when using a guaranteed lifetime income solution. Then we tackle the silent threat most people underestimate: sequence of returns risk. Same average, different order, wildly different outcomes. You’ll hear why early losses can set a plan on a path that later gains can’t fix, and how to design around that with cash buffers, flexible withdrawals, and purpose-built guarantees.

This conversation isn’t about picking a single magic percentage. It’s about constructing a resilient system that blends probability and certainty—covering nonnegotiable needs with dependable income and investing the rest for growth to fight inflation. If you’ve ever wondered how much you can really spend without outliving your money, this is your roadmap to smarter withdrawals, steadier nerves, and a plan you can live with for decades. Enjoy the episode, share it with someone planning retirement, and don’t forget to follow the show and leave a review with your biggest takeaway.

Sources:

Holistic Retirement Planning: Enhancing Outcomes with Insurance Products - By Ernst & Young [URL: https://www.ey.com/en_us/insights/insurance/retirement-insurance-plans-and-products-with-maximum-benefits]

Blackrock Sequence of Returns Risk Chart [URL: https://www.blackrock.com/us/individual/insights/retirement-income]

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Disclosure: Information contained in this podcast is for entertainment and informational purposes only, and should not be considered as financial advice. Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment adviser.  Registration as an investment adviser does not imply a certain level of skill or training. Keystone Financial Group and PCA are separate, non- affiliated entities. PCA does not provide tax or legal advice. 

Transcript

Welcome And Today’s Big Question

Announcer 0:00

The financial huddle does not provide tax, legal, financial, or other professional advice. Listeners are encouraged to consult with their own advisors in these areas. All right, everybody, huddle up. Play balls in. This is the Financial Huddle. Ready?

Ed Beemiller 0:14

Welcome back, Huddlers and Huddler Nation. It's time. It is time. Next episode of the Financial Huddle. Welcome back, everybody. Yes. As always, I am joined by my esteemed colleagues, Mr. Brian Manier.

Brian Minier 0:29

Hello, hello.

Ed Beemiller 0:30

And Mr. Ryan Fleming. It's good to be alive. Oh, it's a good day. You guys feeling good? Every day you wake up is a good day. All right.

Ryan Fleming 0:36

I love it.

Ed Beemiller 0:37

All right. So one thing, you know, we we've talked a lot about, we've even kind of maybe brought up and touched upon it on previous podcasts, is, you know, talking about as financial planners and professionals, there are certain questions we just get asked all the time by our clients. And one of the one of the first questions, or what's one of the Brian, I'm gonna I'm gonna throw this over to you. What's one of the questions we always get asked? And we and we've covered a bit. Yeah.

Brian Minier 0:59

Can I retire?

Ed Beemiller 1:00

Can I retire? How am I looking? Yep. Do I have enough to retire? Well, that kind of leads into the next question of not do necessarily do I have enough to retire, but how much can I spend in my retirement given the assets that I have?

Ryan Fleming 1:19

Yeah, per year. Yeah.

Ed Beemiller 1:20

So that that's going to take us into, and there's always been kind of an industry, not always, but there's an industry guideline or standard that you've heard. It's been around for quite some time. So today's topic is the 4% rule still the accepted rule of thumb in terms of distribution levels. Hear that a lot. Yeah. Yeah. And what that means for our listeners is effectively when you're getting ready to retire or in retirement, that you can take out 4% of your portfolio balance each year and then subsequent years adjusted for inflation.

Ryan Fleming 1:56

Yeah.

Ed Beemiller 1:56

And effectively, over a 30-year period, basically have enough so that you will not run out of money to cover that 30-year retirement period.

Ryan Fleming 2:06

But that wasn't always the rule. So it originated.

William Bengen’s Story And Research

Ed Beemiller 2:09

So we're gonna we're gonna give a little history lesson today. Oh, little history lesson. Professor Professor Ed today. It's history. History time. We're changing it, changing it up a little bit.

Brian Minier 2:19

History time. We need a jingle.

Ed Beemiller 2:20

So it and this is kind of an interesting background. And Ryan, you're you're very familiar with it. And you know, this was the whole 4% rule was created by an individual named William Bengan.

Ryan Fleming 2:31

Oh Bill.

Ed Beemiller 2:32

And oh Bill Bengan. Bill Bengan. Double B. Some people, his friends call them double B. Bill B. B squared. Double B. And what's really interesting is you think, okay, someone he's in the financial industry profession, so you know, probably spent most of his life in that career and everything else. Well, what's so interesting is you go back and look at his background. This is an individual that actually graduated from MIT. Oh. And not only did he graduate from MIT, his degree was in aeronautics and astronautics. His early part of his career was as an aerospace engineer. Okay?

Ryan Fleming 3:07

He's uh infinitely smarter than us all three combined.

Ed Beemiller 3:11

Obviously, MIT, aerospace engineer, that's a that's a pretty intelligent guy. Now, we probably wouldn't then basically take the next step to say, oh, he'd make a great financial planner, right? No. You know, but certain things happened in his life. He got involved in a family bottling business that sold at some point, and he decided he made a change in the early 90s, went into basically investment managing, financial planning. And one of the first things that really bothered or that him and that he really noticed was the clients asking that question is how much can I spend in my retirement?

Ryan Fleming 3:47

Oh, yeah. As an engineer, it probably drove him nuts.

Ed Beemiller 3:50

And he couldn't answer it. He had to get down to the because there was no there was no factual, yep, this is the percentage. Everyone can do it with a high level of probability. So he he he really dug his heels in and did an extensive, up to that point, never heard before, level of research on historical data of returns in the market based upon different portfolio mixes. And what I mean by that, you know, 50% equities, 50% bonds, or 60% equities, 60% bonds, you know, kind of that fits in a category. And out of all that, what basically came out, he wanted to get to a very 90% or higher level of probability that if you took this percentage out, that it would last through your retirement, which once again was classified under that 30 years.

Ryan Fleming 4:39

Okay, yeah.

Ed Beemiller 4:40

So so that's the birth of basically the four percent rule came about at that time.

Ryan Fleming 4:48

That was the year I graduated. Well 994?

Ed Beemiller 4:51

Yeah, it was 1994.

Ryan Fleming 4:52

And when you think about it, kind of date myself evolution.

Ed Beemiller 4:55

But it's not that long ago.

Ryan Fleming 4:57

Right.

Ed Beemiller 4:57

I mean, relatively speaking, in the whole financial history of our marketplace, everything else, right? Not that long ago. Well, have anything has anything changed for you since 94?

Ryan Fleming 5:07

Quite a lot. Look at my hair.

Has The Rule Changed Since 1994

Ed Beemiller 5:09

All right, yeah. Case in point. But you know, not only has your hair changed, but the markets have changed. The, you know, a lot of things when we talk about investments, uh, technology has changed significantly. There's far more options and diversification models and everything else. So if if you've been listening to you know what I call the financial talking heads in the marketplace, there's been you know ongoing discussion about you know what what is an accepted rate of return. Because ultimately, when we're doing retirement income and distribution planning, that's something we talk about, right? Is okay, how much can I take out and will that last through my lifetime? And all right, are we just using a flat percentage? Are we how are we going about doing that? What's really interesting and and kind of you know moved us towards having this as a topic is BB, Mr. William Benyon, has actually come out and he's amended and revamped that to say, okay, rather than four percent, I feel right now that number should be four point seven percent.

4.7 Percent And Context Matters

Ryan Fleming 6:19

Yeah. Right? Yeah. And I think the i in doing a little bit of research on that, I think the reason why that is is yes, things do evolve, and I think he's basically seen that we as investors have a lot more options, uh, more diversified options, whether it be international funds or different types of you know fund, you know, ETFs. And so we have a we have a better array of options to make our money last a little bit longer. Yep. Um, and so I I actually give him credit for going back in and kind of redoing the math again to kind of keep it status quo and apropos to what's going on in our culture, 94, you know, versus now it's a little bit different, right? So, but but I think he also the real another reason why he w did this is because he he also says that it's not a blanket 4.7. You have to look at the kind of the economic environments or the market valuation at the time that you start to pull the money out, right? So if the market's really high, maybe you take out a little bit more. Yep. If if you start pulling money out um and the market's down, maybe you have to take a little bit less.

Ed Beemiller 7:22

So what really I mean, those types of things, you know, are guidelines. And on the other side of the equation, everyone's probably f familiar with the name Susie Orman. You may have good things to say about her, bad things, or maybe it's a mix of things you have to say about her. But Susie's come out and said that the number's actually 3%.

Ryan Fleming 7:41

Yeah.

The 3 Percent Camp And Other Voices

Ed Beemiller 7:42

So significantly different than you know, the the what I would call the creator of that 4% rule, who's now actually going upwards, Susie Orman basically believes, well, we're living longer lifespans. You know, there's more market unpredictability, there's a lot more going on.

Ryan Fleming 8:01

She's trying to give like a little bit of a fudge factor for that.

Ed Beemiller 8:03

Yeah, so so she's being um, I would say more ultra-conservative, saying things are more complicated nowadays. There's a lot of those types of events. But at the end of the day, then you look at that and say, well, all right, well, do I believe Susie Orman at 3%? Or hey, this guy actually created this, you know, and and and William Bengen now says 4.7.

Ryan Fleming 8:20

Yeah.

Ed Beemiller 8:21

So what so what do you think about that, Robert?

Ryan Fleming 8:23

Well, one is I I I I just think it's interesting how people actually get into our industry. You know, Bengen was an aerospace engineer. I mean, I played professional baseball. You came from a different background, you came from I I came from financial pretty much.

Ed Beemiller 8:36

I mean, as a commercial lender and then CFO and but but but different. Yeah, you're right.

Ryan Fleming 8:42

Fascinating to me how people actually get in. Thank God, you know, thank God that he did get into the industry because that's you know, that that's a pretty profound mark uh on our industry here. Um the other thing is is I whether it's Bengen or Ormin or whoever else is out there, I I I think they're all wanting to make sure that people don't run out of money. All right. I think that's end of the day, that's what they're trying to quell. I mean, you could even throw somebody like uh old Dave Ramsey. I mean, he's been on record saying that you can have a sustainable withdrawal rate of eight percent, which has raised a lot of eyebrows from other people out there in the industry, like Dr. Wade Phoe, who's like the foremost expert on retirement distribution planning. So, who do you believe? What's the right math? Um, but let's let's put this into context. So, so let's lose, uh let's use Susie Orman, for example. So um, so for our listeners out there, uh a lot of times when you go to retire, um, your only stream of income might be Social Security. There might be some people that have pensions, maybe a combination of both. But let's just say uh a high percentage of the time, Social Security, a pension, or a combination of both is not going to be enough to um help people retire at some kind of desired standard of living. So let's throw some math on that.

Brian Minier 9:51

Well, and the data shows that social security is only going to cover 40% for most people.

Ryan Fleming 9:56

Exactly.

Brian Minier 9:56

So they need 60% from something else.

Ed Beemiller 9:59

And and most don't have a pension.

Filling The Income Gap With Numbers

Annuities As A Certainty Tool

Ryan Fleming 10:00

So let's just say again, this might not don't don't hold me to this exact math. Let's use round numbers. Let's say you have a desired lifestyle of $100,000 a year between you, your spouse, your Social Security payments, maybe you have $60,000 of income, maybe a small pension, a couple of Social Security payments. Uh well, you have a gap of $40,000. Okay, so let's apply that $40,000 gap, income gap, uh, to your retirement. And let's use Susie Orman's 3%. So the day you retire, uh, in order to create $40,000 of sustainable income for 30 years adjusted for inflation, you would have to have $1.333 million in the bank the day you retire at the 3% that she says. Conversely, let's use uh Bill Bingin's updated 4.7. So, in order to create $40,000 of income to last 30 years that's adjusted for inflation, you would have to have $851,063 of income the day you retire to pull out 4.7% and make it last your entire life, a 30-year period, like you said. Okay. And somewhere in between. All right. Markets high, markets low, right? Whatever. But those are some barometers to think about. But I also want to submit that there's uh maybe another option. A lot of people ask, well, are those the only options, right? Um, and the answer is no. And over the past, you know, several years, the past few decades, um, there's been an incredibly viable option that's called a fixed indexed annuity that creates a guaranteed lifetime paycheck forever. And that's in that's an incredible thing because sometimes we hear uh annuities are bad, or you know, I got taken to the cleaners from an annuity. And and again, there's all different flavors of annuities. It just boils down to do you have the right tool to do the job? And a lot of times people are sold the wrong tool to do the job. But if you get the right tool and you have the right guaranteed lifetime pension annuity, it can change the game. So I'll give you an example. So I did some math, I went to the the one of the highest rated carriers in the entire country, an A plus carrier in the country.

Ed Beemiller 12:12

Is this a life company, annuity company?

Ryan Fleming 12:14

This is a this is a life insurance company, okay, and I won't name the name, but it is an A plus carrier. You can't get better ratings across the board. What would it have taken to create $40,000 of guaranteed income, guaranteed lifetime income, not not probability income, which means like if I died certain income, guaranteed certainty. Yep. Means that and if I died, if I preceded my wife, she would get that guarantee the rest of her life. So I did the math. It would take $563,380 to create $40,000 of guaranteed income, even if we lived 120 years old. Now, let me preface this. That is based on today's interest rate environment, the rates, the payout factors, which can change naturally with the culture. And in 2026, as we sit here today, that would be a good idea for you to think about of what was needed to create some guarantees and certainty. So for example, uh that would be seven almost seven hundred and seventy thousand dollars less to solve the gap that Susie Orman says at 3%. And it would be just under $300,000 less than Bill Bingins increased 4.7%. So what could you do? So you could solve that income with way less money and have way more way more money on the sidelines to do what? Invest to try to hedge inflation, to have opportunities, to literally have the money invested that you have tangibility to.

Ed Beemiller 13:53

And to be more aggressive. Because you have confidence guarantees.

Ryan Fleming 13:58

Yes. And so a lot of people, they don't understand this. They should, and they should count it as a truly viable option. And so, you know, in that, I just wanted to throw some metrics, some stats out there. But I know there's a few other things to consider as you're thinking about what should I do the three, the 4.7, should I do the 6%? Should I do eight, like Dave Ramsey said, or should I buy one of these guaranteed, you know, lifetime pensions, you know, annuities.

Brian Minier 14:23

And the big thing that we always talk about is sequence of returns risk. Humongous. Yeah, and and for those of you that don't know what that is, that basically just means when you lost value in a retirement account because of a bad market, once you take that distribution out, you can never make it up when the market goes back up. That's a huge risk. That's gone. It's huge.

Ryan Fleming 14:42

That's a huge risk in retirement.

Sequence Of Returns Risk Explained

Brian Minier 14:44

So just think of it from a logical standpoint. If you have a million dollars in a retirement account and a bad market happens and you lose 15%, some people would think, well, 15% is not that much. Now you have that 3% or 4%, 4.7% draw, whatever it is, from 850,000. Yeah, no longer a million. That no longer a million. That changes the game. Well, that sets a death spiral, doesn't it? That's exactly right. And so when we do retirement planning, and we do all kinds of services like tax management and whatever those things are, but one of the number one things is when we're looking at you're going to be taking income in a relatively short amount of time, you have to mitigate that sequence of returns risk. I think that I think we would say that's very important. One of the most important things.

Ryan Fleming 15:23

Incredibly important out there listeners.

Brian Minier 15:26

So let me let me give you uh some stats from BlackRock, and they put this piece together a number of years ago. So let's say that you had a million dollars and you had this at age 65, and you put that in a retirement account, and you got an average of seven percent from sixty-five to ninety.

Ryan Fleming 15:45

So for 30 years, bro. Almost 25, 30 years.

Brian Minier 15:47

25 years, right? So average of seven percent. And you would think, well, it doesn't matter, you're all gonna you're gonna end at the same spot. Right. But that million dollars, the person, each of these three examples is gonna take sixty thousand dollars a year for their distribution. But let's say each of those three, even though it's on an average of seven percent, the paths are different. So path one, this the person has a rate of twenty-two percent, fifteen percent, twelve percent, and then minus four, minus seven in that order, and that pattern repeats itself over and over again. Okay. Person number two, same exact numbers, but a different order. Minus seven, minus four, twelve, fifteen, inverted it.

Ryan Fleming 16:33

You inverted it. You inverted it.

Brian Minier 16:34

That pattern repeats itself over and over again. Okay, and then the third option, it's just straight seven percent, which would never happen, but it illustrates it illustrates.

Ed Beemiller 16:43

The return of the market is never linear.

Brian Minier 16:45

Because a lot of people think, oh, what's your average? And when they model it, they just do a linear or whatever percent. And we know that that's never gonna happen. Right, yeah. But this is what's interesting when you look at those three examples at the age of 90, option number one, after taking $60,000 a year, has a balance of a little over a million dollars.

Ed Beemiller 17:04

Okay.

Brian Minier 17:05

Okay, 7%.

Ed Beemiller 17:06

Yep.

Brian Minier 17:07

7% average of option two, they actually ran out of money in their mid 80s.

Ed Beemiller 17:14

So and that was negative returns in the early years.

Brian Minier 17:16

Early, yes, minus seven and minus four. And by the way, you wouldn't think that's really significant. No, that's not a huge market drop. Right. Same average seven percent, but because of the order, it changes things dramatically.

Ryan Fleming 17:30

That's great mathematical evidence. It is, it's not it's not an opinion, it's math.

Brian Minier 17:33

That's math. This is not a strategy, this is just how the math works. Right. So with the same seven percent average, option one has a million dollars to leave to their heirs. Option number two, they ran out of money before the age of 90.

Ed Beemiller 17:48

Yeah.

Brian Minier 17:48

And then if you go to the straight seven percent, there's a four hundred and thirty thousand dollar balance. Somewhere in the middle. Yeah. And so could the four percent seven or the three percent could it work? Possibly. Yeah, maybe it did for that first person on that example. But that's kind of the point. And so we like to educate when we're working with somebody that these things could happen. So sequence of returns is is is a real thing. We want to make sure that we mitigate it, uh, because it could have a dramatic impact negatively on your retirement.

Ryan Fleming 18:20

I mean, let's be honest. I mean, most people are wired to be risk adverse. You know, that's right that that's kind of their default mechanism in life, is they would probably get more emotional if they lost 50,000 than if they won 50,000.

Ed Beemiller 18:34

Yeah, they're more upset than how happy they would be if they but they still want a 20% rate of return.

Ryan Fleming 18:39

Yeah, well, that's the pocket. Yeah. Tune into a couple weeks, we'll do that one. Yeah, yeah. But that's great stats, bro. Yeah. Yeah.

Math Examples And Outcomes

Ed Beemiller 18:45

But really, I mean, in summation here, as we kind of try to wrap this up, you know, we talked about, you know, probability versus certainty. And as financial professionals, we like to have, we like to minimize unnecessary risk when it comes to retirement income and distribution planning. So that's what we we try to put some certainty into that. The probability is what you just went through on sequence of return. There, there's a probability you could lose money in the early years or lose money in the later years. That's going to impact that bucket of what you have significantly and what it enables you to do. So we talk a lot about is it 4%, 4.7, is it 7% or whatever that is? Well, it's really dependent upon the individual circumstances of each client that we work with. So, once again, what do we come back to? Come on in. Make sure you come on in, make sure you sit down, let's look at what you have, and let's look at a path forward. You know, what is the best strategy?

Ryan Fleming 19:40

What feels most comfortable?

Ed Beemiller 19:41

What are the best strategies and what gets you to where you want to be once again, quote unquote, without taking that unnecessary risk.

Brian Minier 19:48

And there's no right or wrong, but I would say, and I think you guys would both agree, most people that we talk to would rather have that certainty when they know the income stream has stopped.

Ed Beemiller 19:59

Exactly. Exactly. All right. So that hey, good stuff. Huddlers, thanks for taking the time. We we we we enjoyed ourselves as always, and I hope you did too. You know, once again, thanks for listening or thanks for watching. You know, the the two different ways that we uh present this uh podcast. And we've talked about it before. If there's topics or different things that you'd like us to discuss on this, please please let us know. So until next time, sign in out.

Brian Minier 20:25

Like, below, and subscribe. Take care. Take care, guys.

Ed Beemiller 20:32

I kept looking at the clock. No, this one we were at 20. I it's okay to for a lot of people.

Ryan Fleming 20:38

That was chock full of some good math though for some people. Well, and once again, I don't know. Sam's gonna have to put up some uh charts so they can follow along. Yeah, make sure to send me those charts. Oh, here we go. Here, you have an e you have a uh Yeah, here you can look you can look at my math I did right here.

Ed Beemiller 20:57

I mean I thought the flow