Four Things You Should Know About the 4% Rule

One of the biggest challenges of planning for retirement is figuring out how much you can spend during your golden years. Retirement income planning requires careful preparation, budgeting, and monitoring.

A popular retirement income planning guideline is the 4% rule, which suggests that you live off 4% of your total investments during the first year of retirement. Then, you readjust every year in retirement based on your changing needs and inflation.

But how closely do we follow this rule? Is the 4% rule a good strategy for you as you plan for living in retirement? Let’s dive into this rule a little deeper and discover four of the most important factors making up the 4% rule. 

What Is the 4% Rule?

The 4% rule is a guideline for managing your retirement income and suggests only withdrawing up to 4% of your savings each year of retirement. For example, if you have $1,000,000 saved for retirement, you will withdraw $40,000 the first year.

The idea behind this rule is that it’s easy to calculate and provides a benchmark for how much you should spend in retirement. The goal of retirement income planning is to make your money last as long as you do, and the 4% rule is designed to help retirees do that.

Economists calculated 4% by considering both average returns on investments and potential market corrections. They also considered the average life expectancy of retirees. In 1990, when the rule was established, the average American man was expected to live 15 years after age 65, and the average woman just under 20 years. Using the 4% rule, retirees could expect to have about 35 years of living expenses.

So, the question remains: Does the famed 4% rule hold up today? Let’s take a look.

Does the 4% Rule Hold Up Today?

Because the 4% rule is so popular among economists, it’s fair to wonder whether or not it’s still relevant today. The short answer: maybe. Every retirement is different, so it’s impossible to have one “rule” that works for everyone. While the 4% rule offers good insight into retirement income planning, it’s more helpful to look at it as a guideline than a rule.1

Today’s retirees face so many factors that everyone can’t subscribe to a concrete “rule,” even if it is popular. When planning out your retirement income, some things to consider include your investments, expenses, health, longevity, and goals.

Factor #1: Your Investment Portfolio

According to Prudential, the 4% rule assumes that “you have about 60% of your investments in equities and 40% in fixed income assets,” and it’s based on a tax-deferred portfolio like a traditional IRA or 401(k) and “assumes that you’ll owe tax on withdrawals.” If you’re spending from a Roth, where withdrawals aren’t taxed if you meet essential criteria, “your calculations may be different.”2

Factor #2: Your Expenses

Everyone’s expenses will look a little different in retirement, depending on where you live, how much money you have saved for retirement, your health care expenses, your hobbies, and whether you work part-time.

Factor #3: Your Healthcare Expenses

It’s no surprise that healthcare costs have gotten more expensive since the 4% rule was established in the 1990s. Today, the average 65-year-old couple can expect to spend over $300,000 on doctor’s appointments and medical bills in retirement. Healthcare expenses are a significant part of your retirement income planning.3

Factor #4: Your Life Expectancy

In addition to having increased healthcare expenses, today’s retirees live longer than they did 30 years ago. The average life expectancy in 1990 was 75.19 years; in 2022, it was 79.05 years.4

As you can see, many factors go into your retirement income planning, and properly preparing for retirement requires much more consideration than just sticking to a blanket guideline like the 4% rule. Every retirement is going to look a bit different.

Spiritual Application

While it’s no surprise that we can’t predict what the future holds in our lives, we can continue to walk by faith in our conduct, speech, and actions. This can effectively allow our our plans to work most productively towards the future that God wants for us. In Galatians 6:9(NLT) we read “So let’s not get tired of doing what is good. At just the right time we will reap a harvest of blessing if we don’t give up.” Having a continual attitude of doing good and continually improving will allow us to better weather a storm that comes up in one of the factors mentioned above or in our lives as a whole. How is that you say? In basic terms, the overall stability of our lives is the sum of the individual parts of our lives. The stronger we can make the areas of our lives that we have control over, the more that will affect the parts of our lives that we don’t have control over and a negative outcome in one area won’t affect us as much as a whole. 

One specific area I believe we can continually do better on as Christians is to align our speech in accordance with the Word of God. Ephesians 4:29(NKJV) states, “Let no corrupt word proceed out of your mouth, but what is good for necessary edification, that it may impart grace to the hearers.” If we only knew the full power that our words have! If we are constantly saying negative things over our lives and finances, we are hindering our ability to reach our full potential. By aligning our speech with what the Bible says, we can align our thoughts, actions, and ultimately our habits towards better and better outcomes. You may be wondering, “How does changing how I speak affect my retirement and investments?” Simply put, our words have power. God created the heavens and the earth with his words. Put that power to work in the right direction and you’ll be pleasantly surprised(hopefully amazed) at what happens. 

Evergreen Financial Group is a Fee-Only Financial Planning and Investment Firm located in Billings, MT serving clients in Montana, Wyoming and virtually across the country. Evergreen Financial Group specializes in working with Christian families, including Young Professionals, Current and Future Retirees and Church Staff Members.


  1. https://www.cnbc.com/select/what-is-the-4-percent-retirement-savings-rule/#
  2. https://www.prudential.com/financial-education/4-percent-rule-retirement
  3. https://www.cnbc.com/2022/05/16/americans-can-expect-to-pay-a-lot-more-for-medical-care-in-retirement.html
  4. https://www.ssa.gov/history/lifeexpect.html

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