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The 4% rule gets talked about a lot but was it ever really a “rule” to begin with?
Posted on 6/24/26 at 11:57 am
Posted on 6/24/26 at 11:57 am
The 4% rule
The article walks through how two leading retirement researchers, along with Bill Bengen himself, think the “4% rule” should be viewed today.
The article walks through how two leading retirement researchers, along with Bill Bengen himself, think the “4% rule” should be viewed today.
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Posted on 6/24/26 at 12:24 pm to La Place Mike
For those of us that are extremely conservative, are annuities coming into fashion?
I know I have been told they are not a wise move, but the more volatile things get the more I have been reading on them. One could put 1,000,000 in one at 62, delay SS for a bit and at 67 have retirement pretty secure. Seems much easier to manage the 5 years between, especially if you have a nice nest egg, than to worry about any long bear markets.
I am merely discussing, I dont feel one way or the other....(annuity talk brings out lots of disparaging comments
)
I know I have been told they are not a wise move, but the more volatile things get the more I have been reading on them. One could put 1,000,000 in one at 62, delay SS for a bit and at 67 have retirement pretty secure. Seems much easier to manage the 5 years between, especially if you have a nice nest egg, than to worry about any long bear markets.
I am merely discussing, I dont feel one way or the other....(annuity talk brings out lots of disparaging comments
)
Posted on 6/24/26 at 12:25 pm to La Place Mike
the whole rule is a crock of shite
have enough investments to live off cash flow from it without drawing down principal. You can take some principal out IF need be for wants, etc, but you invested 40 plus years to just drain it?
your money is supposed to work for you.
pass your wealth on to children.
CASH FLOW> expenses= technically retired and money is working for you.
have enough investments to live off cash flow from it without drawing down principal. You can take some principal out IF need be for wants, etc, but you invested 40 plus years to just drain it?
your money is supposed to work for you.
pass your wealth on to children.
CASH FLOW> expenses= technically retired and money is working for you.
This post was edited on 6/24/26 at 12:28 pm
Posted on 6/24/26 at 12:25 pm to La Place Mike
This was one of those things someone suggested and people took it and ran with it. From what I recall, even the guy who came up with it didn't think people should use it because he didn't mean it to be taken that way. It's one of those rules of thumb that people who don't know much can latch onto. I don't follow it. I use other means to determine if I should cut back from my already generous withdrawal rate.
Posted on 6/24/26 at 12:28 pm to tigerfoot
quote:I will never understand why someone would lock themselves into this type of instrument especially given how likely it is that we will inflate away the value of our money. You need to be hedged against inflation, not buy something that will ensure that you get screwed over time.
For those of us that are extremely conservative, are annuities coming into fashion?
Posted on 6/24/26 at 12:43 pm to Fat Bastard
quote:
the whole rule is a crock of shite
What? How is it shite? Of course I don't think it should be a HARD rule. But its a VERY good number to help you estimate how much you need to save in order to provide what you need for retirement.
Posted on 6/24/26 at 12:51 pm to tigerfoot
quote:
For those of us that are extremely conservative, are annuities coming into fashion?
You do you. An annuity is just very expensive insurance.
You could take that expense and put it in a very low risk investment like a CD or bond and almost always be better off.
Bonds are not absolutely terrible right now. I don't know why you need an annuity if you can get 3% from bonds. Just do something like 80% bonds and even in a completely dog shite market you'd lose 10% of your money with a 50% drop.
BTW, look at the history of the market. The amount of times its had multple negative years is very few.
ETA: When I said you do you, I meant it seriously. Its your money. Its your retirement. Do what makes you comfortable. Just don't read a bunch of doomsday sales pitchy stuff.
This post was edited on 6/24/26 at 12:52 pm
Posted on 6/24/26 at 12:53 pm to RoyalWe
Not to mention the ridiculous commissions the brokers get when they sell these things. Anecdotally, you also hear so many stories about the products themselves not being appropriate for the person they were sold to. Shady stuff.
Posted on 6/24/26 at 1:00 pm to tigerfoot
quote:
For those of us that are extremely conservative, are annuities coming into fashion?
For very conservative investors, annuities aren’t suddenly “in fashion,” but they are getting more attention. In the article, Bengen, Pfau, and Blanchett all note that guaranteed income can play a role in managing longevity and sequence-of-returns risk especially for people who prioritize stability. At the same time, they point out the trade-offs: reduced liquidity, product complexity, and the fact that annuities aren’t necessary for everyone. They’re simply one option to consider, not something to chase or avoid.
Posted on 6/24/26 at 1:08 pm to La Place Mike
One thing that people do not understand about annuities.
The insurance company selling the annuity invests the proceeds into long term interest bearing accounts.
So as a consumer, you probably shouldn't look into annuity options when interest rates are below historical averages (and I dont mean averages the past 25 years).
Take out mortgages when interest rates are low.
Take out annuities when interest rates are high.
This is the simplest of concepts to help avoid buyer's remorse many years down the line.
I personally would not touch an annuity offered in the last 25 years. And if you " suffered " through the market volatility the past 25 years, you are coming out ahead of every annuity offering.
The insurance company selling the annuity invests the proceeds into long term interest bearing accounts.
So as a consumer, you probably shouldn't look into annuity options when interest rates are below historical averages (and I dont mean averages the past 25 years).
Take out mortgages when interest rates are low.
Take out annuities when interest rates are high.
This is the simplest of concepts to help avoid buyer's remorse many years down the line.
I personally would not touch an annuity offered in the last 25 years. And if you " suffered " through the market volatility the past 25 years, you are coming out ahead of every annuity offering.
Posted on 6/24/26 at 1:17 pm to RoyalWe
quote:
I will never understand why someone would lock themselves into this type of instrument especially given how likely it is that we will inflate away the value of our money. You need to be hedged against inflation, not buy something that will ensure that you get screwed over time.
I have locked myself into this type of instrument, and I am 66. We receive approximately $32K per year in income annuity payments, and will begin receiving an additional payment of approximately $40K per year when we are 80 (QLAC). "Approximately as some of them have a dividend component along with a guarantee. These are funds that would have been in bonds, although I still have a healthy allocation to bonds.
I own equities for inflation, and won't need to touch a stock until I am over age 80. If equities do poorly, I'll have enough money anyway. If they do well, then I'll have much more than I need. I don't want to rely on equities doing well to live the life that I have planned. I view the income annuities as an alternative to bonds. There is nothing about them that resemble a stock, so I would not have money that would otherwise go to equities in the annuities.
For people at or very near retirement, it's probably a good idea to have some money in safe assets, and a portion of safe money could be allocated to annuities. If your health is poor, annuities probably are not a great idea. I also realize that if make it to be a very old man, I may not have an interest (or ability) in managing all of my assets, so I am fine with outsourcing some of that. Plus, if I become widowed and my new online girlfriend is actually a Nigerian man, I can't send them my future annuity payments.
I also know people who are miserable owning stocks, so maybe everyone's plan should reflect their own risk tolerance, needs, etc.
Posted on 6/24/26 at 1:18 pm to La Place Mike
That is a good article.
There may be a conversation piece when it comes to annuities.
But i would imagine 99.99% of individuals would do best to avoid them right now and in the foreseeable future.
There may be a conversation piece when it comes to annuities.
But i would imagine 99.99% of individuals would do best to avoid them right now and in the foreseeable future.
Posted on 6/24/26 at 1:21 pm to Bdiddy
Thanks for sharing.
How much did you put into the annuity and at what age did you annuitize?
How much did you put into the annuity and at what age did you annuitize?
Posted on 6/24/26 at 2:08 pm to Fat Bastard
quote:
pass your wealth on to children.
Not everyone has kids, nor does everyones kids need significant wealth passed down.
Posted on 6/24/26 at 3:30 pm to Fat Bastard
quote:
pass your wealth on to children.
Rather spend it on them/myself when I'm alive.
Posted on 6/24/26 at 3:40 pm to Bdiddy
quote:This overrides any comment that anyone, myself included, makes. It's called personal finance for that reason. It's personal. Obviously you know my take on the situation, but if it works for you for whatever reason then it's justified.
I also know people who are miserable owning stocks, so maybe everyone's plan should reflect their own risk tolerance, needs, etc.
Posted on 6/24/26 at 4:10 pm to tigerfoot
I understand the logic around an annuity, but they just seem so damn depressing.
Maybe you get a period certain annuity, which is basically saying I am not disciplined enough to mange my money and I am letting someone skim 1% off the top, or you get a life annuity where the house is betting on you to die.
Like Vegas, providers of annuities know the math and the house always wins.
It is personal to everyone, so you have to decide on wealth vs. income certainty to some degree.
Maybe you get a period certain annuity, which is basically saying I am not disciplined enough to mange my money and I am letting someone skim 1% off the top, or you get a life annuity where the house is betting on you to die.
Like Vegas, providers of annuities know the math and the house always wins.
It is personal to everyone, so you have to decide on wealth vs. income certainty to some degree.
Posted on 6/24/26 at 4:58 pm to La Place Mike
Between Monte Carlo and "worst case scenarios", the 4% rule is a good starting point, but really pushes folks to overprepare for retirement.
Probably okay for the FIRE folks from a planning standpoint, but if you work until say, 67, your portfolio is largely going to work with social security. If you have less than a million dollars, it's likely to be subordinate to social security, particularly for a couple.
Once you have about $1.25m or more, then the portfolio starts doing the heavy lifting. If you have done a good job of right-sizing your lifestyle in retirement, you probably won't need the 4% rule, are able to live off social security and a modest draw for necessities and will have the flexibility to fund wants (mainly travel, gifting opportunities, remodels, etc.) when your portfolio has a good year - imagine folks with a generous balance the past few years, say $1.5m and there is a 25% year? You have a $375k year - even leaving back $100k to buffer/reinforce and inflation protection, you have $275k. That can help a grandchild with college, a child finish retiring a mortgage, etc. And that's with upper middle class money, not Eff You money.
Probably okay for the FIRE folks from a planning standpoint, but if you work until say, 67, your portfolio is largely going to work with social security. If you have less than a million dollars, it's likely to be subordinate to social security, particularly for a couple.
Once you have about $1.25m or more, then the portfolio starts doing the heavy lifting. If you have done a good job of right-sizing your lifestyle in retirement, you probably won't need the 4% rule, are able to live off social security and a modest draw for necessities and will have the flexibility to fund wants (mainly travel, gifting opportunities, remodels, etc.) when your portfolio has a good year - imagine folks with a generous balance the past few years, say $1.5m and there is a 25% year? You have a $375k year - even leaving back $100k to buffer/reinforce and inflation protection, you have $275k. That can help a grandchild with college, a child finish retiring a mortgage, etc. And that's with upper middle class money, not Eff You money.
Posted on 6/24/26 at 5:03 pm to DarthRebel
quote:
I understand the logic around an annuity, but they just seem so damn depressing.
My thought process is that part of your retirement nest egg can sleeve a risk with an annuity. Say you take a mortgage into retirement. Instead of retiring it with a cash balance, you can take the sting out of it by buying a term annuity that reduces/eliminates the need to pay the mortgage out of your cash flow (assuming you're riding on SS, pensions, etc.)
You can actually keep the tax benefits and low interest rate(if you have one) that way and virtually zero out the risk. Most folks will ladder bonds and other fixed income products to take their guaranteed arbitrage profit on a low interest rate, but the annuity is a less risky proposition than equities at this phase of life.
Posted on 6/24/26 at 6:19 pm to meansonny
quote:
How much did you put into the annuity and at what age did you annuitize?
I funded them over time as they were deferred and allowed contributions, including the QLAC.
To get a rate of return, which may be what you are looking for, I would have to find the dates of deposits and amounts. Sorry I don't have that handy.
One thing I did before each contribution including the initial was to run a rate of return on each one. I don't have those numbers anymore. For example, if I were to put $100K into an immediate income annuity today, I would find the income and calculate what rate of return I would earn if I (joint life in my case, so one of us) lived to 85, 90, 93, etc.
The returns are not spectacular. From my memory, I believe that at life expectancy, it was comparable to a safe (no consensus on what that is) bond, but with a slightly better tax outcome as a portion of each payment is principal. If we lived a few years less than LE, the rate of return was anemic, and if we lived a few more, it was considerably better than bonds.
I think the biggest downside is not living near LE, but even then, I feel that it helps my quality of life by knowing that I won't run out of money. I am not going to lose sleep worrying about a poor return on a small portion of assets. That may bother someone else, so good point made earlier re: "personal finance". We have life insurance that will make up for any poor result, which I think is a good hedge. Don't live long, annuity is not great and life insurance is a big win. Live a long time and the rate of return on the life isn't as great, but they annuity is more valuable.
Again, it's for a portion of my money, just under 15%, and it's not life-changing. Also, if something happens to me, the only amount that my wife is going to feel good about spending is annuities, pension, and SS, regardless of how much she can safely withdraw, and for that reason, I probably will purchase a couple of longer term fixed period annuities. I think I have enough in things that have a mortality component. Having a wife that won't spend money does not seem to be a concern for most.
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