For decades, the retirement planning community has clung to the 4% rule as the safe withdrawal rate. The idea was simple: if you retired with $1 million, you could safely withdraw $40,000 per year (adjusted for inflation) without running out of money.

But maybe that guideline was too safe. As Bill Perkins points out in his book Die With Zero, some retirees actually get wealthier as they age because they’re not spending enough. They leave behind large portfolios instead of enjoying their hard-earned money.

Enter a new conversation: the 5% rule.

Recently, I sat down with Bill Bengen, Author of A Richer Retirement. He's the financial researcher who originally developed the 4% rule. And yes, he now believes that retirees can safely withdraw closer to 5% from their portfolios. That might sound like a small change, but for families striving toward financial independence, it’s life-changing.

What is the 4% Rule?

The 4% rule was born in the early 1990s when Bill Bengen started running historical retirement withdrawal simulations. He told me, “I created a very simple situation where I decided to look at it historically… and it turned out that the individual could draw out the rate of 4.15%.”

In other words, if you had a $100,000 portfolio, you could safely take out $4,150 in your first year of retirement. Each year after, you’d adjust that number for inflation.

The media caught on quickly, and the “4% rule” became the golden rule for retirement planning.

But Bengen stresses it wasn’t designed to be one-size-fits-all. “It is basically a worst-case situation based on the person who retired in October of 1968 and ran into back-to-back bear markets and double-digit inflation,” he explained.

That’s right. The 4% number was built for the unluckiest retiree in modern history.

Is the 4% Rule Too Conservative?

Over the years, Bengen’s research has evolved. Instead of just stocks and bonds, he modeled more diversified portfolios with seven asset classes.

“The result? Instead of 4.15%, it’s now up to 4.7%. And you can tweak that a little bit without taking any additional risk and get it up to 5%,” he said.

That means many retirees who’ve been sticking with 4% are actually leaving money on the table and in many cases, growing their wealth instead of spending it down.

As Bengen put it, “If you only take out 5%, you’re going to find yourself building wealth over time. And I think most people would prefer to enjoy their expenses at the highest level they can safely maintain.”

This updated perspective sets the stage for the 5% rule as a more realistic baseline for today’s retirees.

What is the 5% Rule?

The 5% rule is the updated version of the safe withdrawal guideline. With today’s research, retirees can start retirement by withdrawing 5% of their portfolio while still having confidence they won’t run out of money.

Put simply:

• $1,000,000 portfolio → $50,000 first-year withdrawal (plus inflation adjustments)
• $2,000,000 portfolio → $100,000 first-year withdrawal

That’s a meaningful difference compared to the 4% framework. For families saving aggressively toward FIRE, it could mean reaching freedom years earlier.

The Advantages of the 5% Rule

1. More Time to Live

Moving from 4% to 5% means you don’t need to stockpile as much. Instead of saving 25x your annual expenses, you only need 20x.

That could shave years off your working life.

2. Flexibility in Spending

Bengen told me, “Historically, the average safe withdrawal rate over the last hundred years is 7%.”

If 5% is the floor for worst-case scenarios, that means many retirees can spend even more in normal markets.

3. Avoiding “Die With Too Much”

The 4% rule often results in retirees passing away with more wealth than when they retired. That’s not inherently bad, but if your goal is to enjoy your time on earth, the 5% rule is a more balanced approach.

Other Withdrawal Rates to Consider

Not all experts agree on a single safe withdrawal rate.

• “3% Rule”: On the conservative side, financial personalities like Suze Orman suggest going as low as 3% (Moneywise). Vanguard’s own research has pointed to about 3.7% as sustainable for many retirees (Vanguard Research). These lower numbers provide extra security, but they can also cause retirees to underspend and miss out on enjoying their money.
• “8% Rule”: On the optimistic side, Dave Ramsey has suggested that an 8% withdrawal rate is realistic (Nasdaq). Bill Bengen disagrees, explaining, “Under very favorable circumstances, you could go 8%. But this is not the time for that… an 8% is unfortunately far too high for this environment.”

With such a wide range of advice, it’s clear there’s no one-size-fits-all number. That’s why having a flexible withdrawal strategy is more important than following a rigid rule.

Why Having a Fixed “Rule” Isn’t the Best Plan Anyway

While the 5% rule is a strong baseline, retirement isn’t static.

Some years the market booms, some years inflation spikes, and your personal needs may change too. Bengen encourages adaptability: “You just can’t start out, ‘I’m going to take 5% and let it ride for the rest of retirement.’ You have to be ready to deal with potential problems.”

In practice, that means sometimes you’ll withdraw 4%, sometimes 6% or more. The point is having a guideline, not a cage.

Why I’m Planning With the 5% Rule (Instead of a 4% Rule)

Personally, I plan to follow the 5% rule and be open to flexibility in my retirement years.

Why? Because life isn’t about hoarding money until your 80s. It’s about using your resources to live fully today.

If the average American only lives until 78 years old, I don’t want to spend my healthiest years overworking and oversaving. That’s why the 5% rule resonates with me. It balances safety with freedom.

And as I discuss in my book Own Your Time, when we over-save, we’re often stealing precious time from our 30s and 40s in hopes of abundance in our 70s. What if we never make it that far?

By planning around 5%, I give myself permission to live more now.

Wrapping It Up: The 5% Rule as a New Baseline for Retirement Planning

The 4% rule gave retirees a solid foundation for decades. But thanks to Bill Bengen’s continued research, we now know the 5% rule is a reasonable upgrade for most investors.

Does that mean it’s perfect? No. Retirement planning still requires flexibility, awareness of market cycles, and ongoing adjustments.

But for those of us seeking financial independence, it’s liberating to know we don’t have to overshoot our savings targets. We can reclaim years of our lives, spend more freely, and avoid leaving behind regrets.

As Bengen told me, “Most people would prefer to enjoy their expenses at the highest level they can safely maintain.”

I couldn’t agree more.

What do you think of the 5% rule?

Please let us know in the comments below.