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Is the 4% Rule Dead?

Written By: Mark MacDonald | Sage Financial Partners

Listen carefully. Do you hear it?

The doleful sound in the distance is a bugler playing taps. He’s mourning the demise of the 4% Rule.

May it rest in peace.

For decades, the 4% Rule was the benchmark adopted by financial planners to determine how to take retirement fund distributions in a way that would:

a)  Maximize your retirement income
b)  Protect you from running out of money for at least 30 years

The 4% Rule was the invention of a financial planner named William Bengen in the 1990’s. Mr. Bengen did extensive back-testing of stock and bond returns and declared that portfolios with 60% of their holdings in large-cap stocks and 40% in intermediate-term U.S. bonds could support a withdrawal rate of 4% adjusted for inflation for every 30-year span going back to 1926.

Unfortunately, recent history has proven fatal to the model. Academics discovered that if the market takes a hit like it did in 2000 or 2008, and the crash occurs during your first three years of retirement, the 4% Rule my not hold up, and your prospect of running out of money multiplies.

A recent Wall Street Journal article showed that if you started retirement on Jan. 1, 2000 by withdrawing 4% from a portfolio made up of 55% stocks and 45% bonds, and increased your annual withdrawals to keep pace with inflation, your nest egg would have shrunk by 33% through 2010. And the chance of your money lasting through three decades fell to less than a 1-in-3.

So if the 4% Rule is no longer reliable, what can baby boomers use as a guide to make sure they don’t outlive their nest egg? 3%?… 2%?…

Turns out that’s the wrong question to ask.

Instead of stressing over what percentage to use (who can live on 2% anyway?), a better question to ask is: How can I create a guaranteed income stream that pays my bills and continues for the rest of my life?

And to that question there’s but one and only answer.

An annuity is the only financial tool that guarantees your principal and guarantees to pay you an income stream for as long as you live. There’s no guessing. No wondering. No worrying. The insurance company tells you on Day 1 what they promise by contract to pay. You cannot outlive your money.

You keep living, they keep paying.

Baby boomers have been pouring billions into these accounts in recent years. One popular strategy is to take a portion of savings and convert it into a personal pension plan that pays you a paycheck for life. In addition to providing guaranteed income, an annuity is:

1)  SAFE: Your principal is protected against losses.
2)  STEADY: Your checks come like clockwork.
3)  SIMPLE: Set it and forget it. No need for portfolio rebalancing or sweating out the next market downturn.

So don’t mourn the passing of the 4% Rule. Consider a 100% sure thing instead.

About Sage Financial Partners: Specializes in strategies that are not available, and often not discussed, at traditional investment advisory firms. Learn about a safe, simple, sleep-at-night strategy that 1) Protects and defends your principal; 2) Provides income for life; 3) Offers growth potential with downside protection; 4) Keeps you in control of your money in case your needs change. For a free report and CD about lifetime income planning, send an email to

Annuity123 is an educational platform only.  Annuity123 does not offer insurance, investment, or tax advice.  You should always seek the guidance of qualified and licensed professionals concerning insurance, investment, or tax matters.


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