It seems the 4% rule has now become the 4.7% rule.
In the early 1990s, financial planner William Bengen was looking for a simple solution that would help clients understand how much they could spend each year in retirement before they ran out of money.
He came up with the 4% rule and published his findings in Financial Planning Journal in 1994. (2) The 4% rule stipulates that you withdraw 4% of your savings in the first year of retirement. Each subsequent year, you withdraw the same amount, but adjusted for inflation.
The idea was that you could safely stretch your retirement savings over 30 years. The 4% rule has caught on and is now often referred to as the “rule of thumb” in financial planning circles, although it has been hotly debated over the years.
Now Bengen says it's time to reconsider that figure. Here's why and how it could affect your retirement plans.
Part of the appeal of the 4% rule is that it provides a simple “solution” to a problem that many Canadians fear: that they will run out of money before they die.
According to the HOOPP Canada Retirement Survey 2025, more than half of Canadians (56%) are worried they won't have enough money in retirement as economic uncertainty has “caused many Canadians to prioritize their daily spending over saving for retirement.” (2)
Since Bengen first introduced the 4% rule in the 90s, the world has changed – a lot.
The 4% rule was based on a hypothetical portfolio consisting of 50% stocks and 50% bonds. He also used historical market returns.
The more common asset split these days is 60/40 (stocks/bonds) or even 70/30. Retirees are likely to have assets in a wider variety of asset classes, which may include cash, commodities and real estate.
An analysis by Charles Schwab Investment Management (CSIM) predicts that “market returns on stocks and bonds over the next decade are likely to be below long-term historical averages,” meaning that “using historical market returns to calculate sustainable withdrawal rates could result in withdrawal rates will be too high.” (3)
The 4% rule also assumes a 30-year retirement. According to Statistics Canada, more than one-fifth of Canadians (21.8%) between the ages of 55 and 59 are fully or partially retired. (4)
With some Canadians retiring before age 65 or living longer than their parents or grandparents, they may need to prepare for a 35- or 40-year retirement window instead.
Bengen has published a new book. A Richer Retirement: Strengthening the 4% Rule to Spend More and Enjoy Morein August, which sets the new rule at 4.7%.
The 4.7% rule considers seven asset classes, including large-, mid- and small-cap U.S. equities, as well as micro-cap stocks, international equities, intermediate-term U.S. government bonds, and U.S. Treasury bills.
While the new rule allows for more variety, it also provides a more generous withdrawal rate. But 4.7% is what he calls the “universal safe maximum.”
A more generous withdrawal rate can help with the rising cost of… almost everything. Home prices, home insurance rates and property taxes are rising.
For example, home insurance rates across the country have risen 5.28% this year, according to Insurtech MyChoice Financial research. Alberta has the largest year-over-year increase at 9.07%. (5)
While the 4.7% rule is a starting point, it is only a starting point.
In fact, earlier this year Morningstar cited a much lower “safe” withdrawal rate: 3.7%. This is due to rising costs, persistent inflation and life expectancy trends. (6)
Everyone's situation will be different, and Bengen is not suggesting that people follow the rule literally. For some, this percentage may be a little lower or a little higher.
For example, if you have a chronic illness and don't expect to live past age 90, you may want to adjust your withdrawal levels accordingly. Your cost of living may also decline in your later years of retirement, although long-term care costs may rise. You may also want to leave a legacy for your loved ones.
You'll also want to factor your Canada Pension Plan (CPP), private pension (if you have one), and any non-portfolio income streams into your overall retirement budget, which may mean you don't need to withdraw the full 4.7% from your nest egg. So it's worth talking to your financial advisor about how to make the numbers work for you.
However, one of the biggest problems is that many Canadians don't have enough saved for retirement.
A recent BMO retirement study found that two-thirds of Canadians (63%) say rising prices are affecting their ability to save for retirement. While some are cutting back on spending to maintain their current savings levels, others are investing less in savings or saving altogether. (7)
Without any savings, the withdrawal rule is a moot point.
We rely only on verified sources and credible third-party reports. For details see our editorial ethics and rules.
Journal of Financial Planning (1); HUPP (2); Charles Schwab (ur.3); Statistics Canada (4); Insurance Institute (5); Morningstar (6); BMO (7)
This article provides information only and should not be construed as advice. It is provided without any warranty.
