Page 4 - Wealth-Adviser-Issue-119 (FWP)

ISSUE 119
SEPTEMBER 2025

NAVIGATING

RESILIENT RETIREMENT

BEYOND THE 4% RULE FOR

AUSTRALIAN INVESTORS depositphotos.com

BY WEALTH ADVISER economic environment than today. ‘Safe’ withdrawal rates
may not be safe enough if certainty is required. As economic
Introduction: The Legacy and Limits cycles, inflation patterns, and personal circumstances have
of the 4% Rule evolved, so too have debates over the rule’s relevance for
When Bill Bengen first delved into the mathematics of today’s retirees—especially Australians, where superannua-
spending in retirement, his aim was to answer a deceptively tion, franking credits, and property figure differently than in
simple question: how much can you safely draw from your the US. Local analysis increasingly questions whether fixed
investments each year and never run out of money? After “rules of thumb” truly reflect the nuances of real-world
studying a range of portfolios and market climates since the financial decisions.
1920s, Bengen’s analysis led to the now-famous “4% rule,”
which transformed retirement planning for millions world- Why the Rule Needs Revisiting:
wide. Inflation, Markets, and Longevity
That 4.15% became the ‘4% rule’, and it ended up Planning for retirement income is unavoidably a bal-
revolutionizing retirement planning. It became a simple ancing act with no crystal ball. Among the most menacing
rule that advisers and their clients could use. The appeal threats is inflation. Inflation is the biggest enemy for retir-
was obvious: retirees could estimate the nest egg needed ees. In the 1970s, US inflation averaged 8-9% per annum. It
to support their chosen lifestyle, simply by dividing annual destroyed many retiree portfolios. Bengen’s original analysis
spending needs by 4%. Yet, even Bengen recognised this was paid special heed to such destructive episodes, where both
a conservative benchmark, designed for the worst historical the cost of living and the value of retirement assets came
market conditions and relatively simple 50/50 portfolios. under siege.
Importantly, the notion of the ‘4% rule’ for drawing Australians today face similar anxieties. Longevity
retirement income was devised in a much different risk—the chance that you outlive your savings—has become

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