Many advisors still talk about the “4% Rule” as a safe way to take money from your retirement account. The idea is simple — take 4% of your portfolio each year, adjust for inflation, and you’ll be fine.
But here’s the truth: this rule is outdated and risky. Following it blindly could mean running out of money when you need it most.
Let’s break it down in simple terms so you can see why depending on the 4% rule could be dangerous.
What the 4% Rule Really Means
The 4% rule was never meant to be a hard rule. It started as an estimate based on historical data in the 1990s. Since then, many experts have said 4% might actually be too high.
Today, many retirement researchers suggest a safer withdrawal rate might be closer to 3%–3.5% depending on your age, life expectancy, and goals.
But even if you adjust the number, the biggest danger is timing.
Why Timing Matters So Much
There are two phases to your financial life:
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- Accumulation phase: When you are working, saving, and building wealth.
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- Distribution phase: When you retire and start spending what you saved.
Most advisors are trained to help with accumulation — not distribution. The rules are different once you stop working.
The biggest problem with systematic withdrawals is the sequence of returns risk.
Imagine two retirees who started with $500,000:
| Retiree | Retirement Date | Portfolio Value Years Later |
| Ben | January 1968 | $200,000 left |
| Susan | April 1968 (3 months later) | Almost $1,000,000 left |
They started with the same amount, took the same withdrawals, and had the same portfolio allocations. The only difference was when they retired. Ben lost most of his money, and Susan increased hers.
This shows that being just a few months “off” can mean hundreds of thousands of dollars lost over your lifetime. Watch this week’s podcast to see exactly how a difference of only 3 months caused this dramatic difference in outcomes.
The Three Types of Retirees
Not everyone is affected the same way by withdrawal rates. Here are the three main types of retirees:
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- Overfunded investors: Have far more money than they need and can withdraw safely at 3% or less.
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- Underfunded investors: Don’t have enough saved to safely retire. They may need to work longer or find other income.
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- Constrained investors: The largest group. They might have plenty saved, but need to take more than 4% per year to maintain their lifestyle.
If you’re in that last group, the 4% rule is very concerning. You’re pulling too much from the account, and bad timing could drain your savings faster than you expect.
The Three Biggest Retirement Risks
Every retiree faces three main risks:
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- Timing: Bad markets early in retirement can destroy a portfolio.
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- Longevity: You might live longer than expected, forcing your money to stretch further.
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- Inflation: The cost of living will keep rising, meaning you need more income later.
A simple withdrawal plan doesn’t protect you from these risks.
Why Guessing Isn’t a Strategy
Systematic withdrawals depend on good luck. If markets are strong early on, you may do fine. If they are weak, you could run out of money.
You shouldn’t gamble your future on guessing what the market will do.
How to Take Timing Risk Off the Table
The best way to eliminate timing risk is to stop relying on market guesses for income. This is where income annuities come in.
An annuity is not an investment — it’s insurance. It transfers the risk of running out of money to an insurance company.
Benefits of an income annuity:
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- Guarantees income for life
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- Removes guesswork about how much to withdraw
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- Allows you to spend confidently knowing the income will continue
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- Works no matter how the market performs
Think of it like a fruit tree that grows back new fruit every month. You can eat what you need and know it will replenish.
Take Control of Your Retirement
Your retirement plan should focus on reliable income, not just investment returns. Your lifestyle depends on steady cash flow, not how big your account balance looks.
Stop leaving your future to chance. Build a plan that gives you confidence no matter what the market does. You will always need income in your retirement!
Next Steps
If you want to learn more about safe withdrawal strategies and how annuities might fit into your plan, watch my video series “20% More Spendable Income in Retirement”
When you’re ready, schedule a short Zoom call with me using the “Schedule a Call” button at the top right of the site. We’ll go through your goals and build a plan that helps you avoid the mistakes that can ruin a retirement.
Podcast Episode 86: Why the 4% Rule Could Destroy Your Retirement
Download Podcast Episode 86: Why the 4% Rule Could Destroy Your Retirement on Apple Podcast