Bill Bengen has updated his 4% retirement rule — here's what to consider before adjusting your spending

It seems the 4% rule is now the 4.7% rule.

In the early 90s, financial planner William Bengen was looking for a simple solution to help clients understand how much they could spend each year in retirement before running out of money.

He came up with the 4% rule and published his findings in the Journal of Financial Planning in 1994 (1). The 4% rule stipulates that you withdraw 4% of your savings in the first year of retirement. Each year after that, you withdraw the same amount but adjusted for inflation.

That idea was that you could safely stretch your retirement savings for 30 years. The 4% rule caught on and is now commonly referenced as a ‘rule of thumb’ in financial planning circles — though it has been hotly debated over the years.

Now, Bengen says it’s time to revise that number. Here’s why, and how it could impact your retirement plans.

Why the 4% rule needs an update

Part of the appeal of the 4% rule is that it provides a simple ‘solution’ to a problem many Canadians fear: that they’ll run out of money before they die.

More than half of Canadians (56%) are worried they won’t have enough money in retirement, according to the Healthcare of Ontario Pension Plan (HOOPP) 2025 Canadian Retirement Survey (2), as economic uncertainty “has left many Canadians prioritizing their daily expenses over saving for retirement.”

Since Bengen first came up with the 4% rule in the 90s, the world has changed — a lot.

The 4% rule was based on a hypothetical portfolio of 50% stocks and 50% bonds. It also used historical market returns.

Now, a more common asset split is 60/40 (stock/bonds) or even 70/30. Retirees likely have assets across a more diverse set of asset classes, which could include cash, commodities and real estate.

An analysis (3) by Charles Schwab Investment Management (CSIM) projects that “market returns for stocks and bonds over the next decade are likely to be below long-term historical averages,” which means that “using historical market returns to calculate a sustainable withdrawal rate could result in a withdrawal rate that is too high.”

The 4% rule also assumes a 30-year retirement. Over one-fifth of Canadians (21.8%) aged 55 to 59 years are either completely or partially retired, according to Statistics Canada (4).

With some Canadians retiring earlier than 65 or living longer than their parents and grandparents, they may need to prepare for a 35 or 40-year retirement window instead.

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How the new rule works

Bengen published a new book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, in August, which posits the new 4.7% rule.

The 4.7% rule takes into account seven asset classes, including U.S. large-cap, mid-cap, small-cap and micro-cap stocks, international stocks, U.S. intermediate-term government bonds and U.S. Treasury bills.

While the new rule allows for more diversity, it also provides a more generous withdrawal rate. But 4.7% is what he dubs a “universal safemax” withdrawal rate.

A more generous withdrawal rate can help with the rising cost of … almost everything. Home prices, home insurance rates and property taxes are all on the rise.

For example, home insurance rates across the country have risen by 5.28% so far this year, according to a study from insurtech MyChoice Financial, the province of Alberta has the largest year-over-year increase at 9.07% (5).

While the 4.7% rule is a starting point, it’s only a starting point.

In fact, earlier this year, Morningstar pointed to a much lower ‘safe’ withdrawal rate: 3.7% That’s due to rising costs, persistent inflation and longevity trends (6).

Everyone’s situation is going to be different, and Bengen doesn’t suggest people follow the rule to the letter. For some, that percentage might be slightly lower or slightly higher.

For example, if you have a chronic disease and don’t expect to live well into your 90s, you may want to adjust your withdrawal rate accordingly. Your cost of living could also decrease in the latter years of your retirement, though the costs of long-term care could rise. You may also want to leave a legacy behind to your loved ones.

You’ll also want to factor in 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 entire 4.7% from your nest egg. So it’s worth a chat with your financial advisor on how to make the numbers work for you.

One of the biggest issues, though, is that many Canadians don’t have enough saved for retirement.

A recent BMO retirement survey found that two-thirds of Canadians (63%) say rising prices are affecting their ability to save for retirement. While some are cutting expenses to maintain their current savings levels, others are putting less into savings or putting off savings altogether (7).

Without any savings, a withdrawal rule is a moot point.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Journal of Financial Planning (1); HOOPP (2); Charles Schwab (3); Statistics Canada (4); Insurance Institute (5); Morningstar (6); BMO (7)