Follow the 4% rule for retirement and chill.
2 min read


The 4% retirement rule is a common financial advice guideline that defines a strategy for using your savings in retirement and dictates how much you needed to accumulate in order to avoid depleting your capital too soon. The fallacy here is that this rule ignores several important factors.

  1. Market volatility: This rule does not account for potential market downturns which could significantly reduce your retirement savings and that may have a psychological tool on the investor.

  2. Personal spending: The rule assumes that your spending will remain stable throughout retirement. But this may not be the case due to healthcare costs or other needs.

  3. Longevity: Everyone’s lifespan is unique. Following the 4% rule might leave some who live longer with the risk of outliving their savings. The rule was tested considering a 30 year timespan.

  4. Failure rates: The 4% rule does not guarantee thet you’ll not deplete your capital, it only states that it will be unlikely. Still there have been past scenarios in which depletion happened or was really close.

  5. Economic boom: the 4% rule was calculated for US investors, during a timespan of economic boom and world domination that may not repeat in the future or for other nations.

People may fall for this fallacy because it simplifies the complex and daunting task of retirement planning. It’s an easy-to-understand strategy that provides a concrete number to aim for your retirement fund. Not to mention, it sounds very appealing to be able to ‘chill’ after you retire. However, this concept oversimplifies and overlooks the complexity of personal finance which makes it quite risky.

An effective financial strategy for retirement planning should include:

  1. Adjustment according to personal needs: Tailor your withdrawal rate and spending based on your personal needs and lifestyle.

  2. Adjustment according to market fluctuation: spend less when markets are low, spend more when they are high.

  3. Explore alternative and more effective strategies for withdrawing your capital during retirement.

Further readings specific to this fallacy are:

  1. “The 4% Rule: The Easy Answer to ‘How Much Do I Need for Retirement?” by Mr Money Mustache. Article Link

  2. “The Only Guide You’ll Ever Need for the Right Financial Plan: Managing Your Wealth, Risk, and Investments” by Larry E. Swedroe. Book Link.

  3. “Retirement spend-down” Wiki Link.

  4. “How Much Can I Spend in Retirement?: A Guide to Investment-Based Retirement Income Strategies” by Wade D. Pfau. Book Link

  5. “Retire Secure!: A Guide to Getting the Most out of What You’ve Got” by James Lange. Book Link.

  6. “The 4% Rule for Retirement (FIRE)” by Ben Felix. Video Link

These readings will provide a more comprehensive understanding of why the 4% rule may not be an absolute and definitive rule for retirement planning. The main tip to take away is the importance of personalized finance management.