Suze Orman Calls The 4% Retirement Rule 'Very Dangerous' In Today's Challenging Economic Climate

Many Americans wonder how much money to withdraw from their retirement savings each year, and financial expert Suze Orman believes that the 4% retirement rule is no longer the answer. 

Orman, known for her blunt and hard-hitting financial advice, discussed why so many Americans are living paycheck to paycheck and her opinion on retirement savings during an interview with SecureSave Co-Founder Devin Miller for Moneywise

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"It doesn’t work anymore. I think it’s very dangerous," Orman said about the retirement rule.  

For years, the 4% retirement rule was the standard, but with today's challenging economic climate, it's not feasible for most Americans. Record-high inflation, market volatility and interest rate hikes are just some of the challenges the average American faces and withdrawing 4% of their assets each year has been called into question. 

Instead, Orman feels this number should be lowered to at least 3%, a figure that will differ from person to person. 

For example, waiting to take Social Security until you can get the maximum monthly amount at age 70 will give your assets more time to grow, Orman said, noting that many people believe they need to retire at 60. She also said it's important to understand the tax ramifications of collecting Social Security. 

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"Stop this: ‘Oh, I’m going to retire at 60. I’m going to start claiming Social Security at 62," she said. 

With economic volatility that could change the cost of living and so many uncertainties ahead, Orman advises people to "take the least amount possible out of retirement accounts." The less money you withdraw each year, the better off you will be in the long term because uncertainties like unexpected medical problems, stock market swings and interest rate hikes can eat away at your pile of cash, she said. 

"I would not be using the 4% figure on any level," she said. 

In addition to spending less and growing your retirement savings, Orman advises building emergency savings using liquid assets. Dipping into your retirement savings for a crisis can result in tax penalties and negatively affect your retirement savings growth.  

Orman believes that Americans with no emergency savings have a "financial tornado" heading their way.  

However, Orman's suggestion of 3% may not cut it for some people, and Bill Bengen, financial planner and creator of the 4% rule, disagrees with this figure. Bengen coined the 4% term in 1994 based on decades of statistics. He updated the rule 30 years later to match the current economic climate. Originally, Bengen believed that if retirees adjusted their withdrawals to 4%, they could guarantee their money would last another 30 years. Now, Bengen advises increasing that withdrawal rate — his is now 4.7%. 

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"My 4% rule was actually based upon a worst-case situation," Bengen said on a Bogleheads live podcast. 

Bengen explains that his worst-case scenario involved bad stock market results and high inflation, which forced withdrawal figures to increase. Another problem with this 30-year-old withdrawal figure is that people are living longer and are under more pressure to stretch their savings as far as possible. Despite the COVID-19 pandemic, life expectancy in the U.S. has increased to 79.25 years in 2024 from 75.81 years when Bengen coined the 4% rule.  

While Bengen and Orman disagree on how much you should withdraw, it is clear that the figure depends on your lifestyle, finances and assets.  

Rebecca Lake, a personal finance expert, agrees that the rule is no longer the best approach. In a blog post, Lake wrote that the 4% rule "may not be the best guideline for everyone." 

Instead, she advises that knowing what withdrawal figure to use involves looking at the bigger picture, including your tax liability. Withdrawing more than 4% will push you into a higher tax bracket, increasing your overall tax bill. Retirees should adopt a flexible withdrawal figure to keep up with evolving income needs. 

Consulting with a financial adviser can help you choose the right withdrawal figure for your financial needs and lifestyle.      

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