The longstanding 4% rule was developed in the mid-1990s to answer the question, “How much can I safely withdraw from my retirement savings each year and have my nest egg last for the duration of my retirement?”

While this simple rule of thumb still stands strong despite numerous studies designed to prove it inadequate, it is important to understand the original assumptions that went into creating the rule and then take a modern view in order to get a more comprehensive answer to that important question.

In 1994, financial adviser William Bengen introduced the concept of the 4% rule, which found that retirees who withdrew 4% of their retirement portfolio balance, and then adjusted that dollar amount for inflation each year thereafter, would create a paycheck that lasted for 30 years.

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The 4% rule should not be the last word in retirement spending

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