Time to Cut Down on Spending

WSJ: Cut Your Retirement Spending Now, Says Creator of the 4% Rule

The combination of 8.5% inflation with high stock and bond market valuations makes it difficult to forecast whether the standard playbook will work for recent retirees, said retired financial planner Bill Bengen, who first devised the 4% rule in 1994.

He now recommends retirees take a less aggressive approach to drawing down their nest eggs, at least until we determine whether the current surge in prices that has been particularly stressful to those on fixed incomes is a long-term trend or a short-term blip.

The longstanding method calls for spending 4% in the first year of retirement, and then adjusting that amount annually to keep pace with inflation. Such an approach would have protected retirees from running out of money in every 30-year period since 1926, even when economic conditions were at their worst, Mr. Bengen said.

“The problem is that there’s no precedent for today’s conditions,” he said. His concern echoes a recent report from Morningstar Inc. , which recommends a 3.3% initial withdrawal rate for those retiring today who want spending to keep pace with inflation over three decades and a high degree of certainty their money will last.