What is the 4% rule in retirement planning?

Retire rich or run out of money, what’s your plan?
Imagine you’ve finally reached retirement. No more alarms, no more commutes. But now, a new question creeps in: Will my money last? This is where the 4% rule in retirement planning becomes necessary.

Understanding the 4% Rule in Retirement Planning

Simply put, the 4% rule in retirement planning is a guideline that suggests retirees can withdraw 4% of their retirement portfolio each year without running out of money for at least 30 years. Developed in the 1990s by financial advisor William Bengen, it was based on historical data of stock and bond returns.

Let’s break this down with an example:

Retirement Savings	Annual Withdrawal (4%)	Years Sustainable
₹4,15,00,000	₹16,60,000	30+ years
₹8,30,00,000	₹33,20,000	30+ years
₹16,60,00,000	₹66,40,000	30+ years

This rule helps retirees avoid the very real fear of outliving their savings, a concern that’s just as valid here as it is in the West.

Know when to Get a CA Involved in Your Retirement Planning

Why the 4% Rule Matters Now More Than Ever

With rising life expectancy and inflation constantly nibbling at your savings, retirees need a plan that keeps their money working. The 4% rule in retirement planning is relatable because it gives you a simple, numbers-based starting point. It’s not perfect, but it’s powerful.

How well does the 4% Rule work for You?

Let’s get real, everyone’s financial picture is different. Here’s how to decide if the rule fits your lifestyle:

• Do you plan to travel often? You might need a higher budget.
  
• Are you expecting large healthcare costs? Consider extra savings.
  
• Do you have other income sources? You could withdraw less.
  

Modern Twist: Adjusting the Rule

Many advisors now suggest modifying the rule to match today’s economy:

• Start at 4%, but reduce during market downturns.
  
• Use a dynamic withdrawal strategy based on spending needs.
  
• Combine with guaranteed income sources (like annuities or pensions).

To strengthen your retirement strategy, pair the 4% rule in retirement planning with reliable income streams. In India, schemes like the Senior Citizens’ Saving Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY), and Post Office Monthly Income Scheme (POMIS) offer fixed, government-backed returns. Additionally, life annuity plans from LIC or other insurers provide lifelong income, while employee pension schemes (EPS) and National Pension System (NPS) help build a diversified retirement base. These options add a safety net, ensuring you have consistent income regardless of market fluctuations.

By adapting, you keep the benefits of the 4% rule in retirement planning without locking yourself into a rigid structure.

A Simple Solution You Can Start Today 

Want to try it out? Use this quick formula:

Your Savings ÷ 25 = Safe Annual Withdrawal

Since, 4% withdrawal = withdrawing 1/25th of your savings per year 

So if you have ₹6,22,50,000 saved,
₹6,22,50,000 ÷ 25 = ₹24,90,000/year

It’s empowering to see a concrete number. That’s the power of the 4% rule, it simplifies a complex, emotional topic into something you can act on.

This is how CAs Assist in Retirement Planning for Young Professionals

Final Thoughts

The idea of retirement doesn’t have to be scary or uncertain. The 4% rule in retirement planning offers a relatable, proven way to start building financial peace of mind.

Whether you’re 35 or 55, today’s the perfect time to ask yourself: Am I preparing for the life I want later?