How to plan for retirement using an online calculator
A retirement calculator can help you figure out when it’s financially possible to retire.
problem solved
Back in 1994, financial advisor Bill Bengen created a retirement principle known as the 4% rule. His idea spread quickly.
Bengen rules are currently being updated.
The 4% rule states that you should plan to spend 4% of your savings in your first year of retirement, and then spend the same amount each year thereafter, adjusted for inflation.
It gained traction because it’s a simple formula for solving the complex problem of how to fund your retirement.
The 4% rule has garnered both praise and derision over the years. Bengen said it was time for a revision, and the 4% rule became the 4.7% rule.
This revision demonstrates both the strengths and weaknesses of the original 4% rule.
This rule is brilliant in its simplicity and remains one of the most well-known concepts in the personal finance field.
Rob Williams, managing director of financial planning at Charles Schwab, told USA TODAY in 2025.
But some retirement experts say this rule is a bit too simplistic. It’s an allocation that Bengen used to develop his own rules, dating back to a time when many savers invested half their money in stocks and half in bonds.
Financial advisors now often recommend that retirement savers diversify across a longer list of “asset classes,” including several stocks and bonds, real estate, and cash and cash equivalents. And fewer investors are putting half their money in the bond market.
How the 4% rule became the 4.7% rule
The 4% rule began as a piece of mathematics in a paper Bengen wrote in the Journal of Financial Planning in 1994. Bengen reasoned that if retirees started at that spending rate, their savings would last 30 years. (The actual number was 4.15%. It was truncated.)
This rule caught on by surprise even its authors.
“It’s surreal. I can’t believe we’re still doing this 30 years later,” Bengen told USA TODAY in 2025.
Bengen continued to refine the rules to suit his own investing habits. Thirty years ago, his research focused on an equal mix of U.S. government bonds and large company stocks. He is currently working on a broader investment portfolio, including large, mid-market and small business stocks, international stocks, bonds and Treasury bills.
“Now we have seven asset classes,” he said.
Bengen’s calculations assume a somewhat conservative mix of 55% stocks, 40% bonds and 5% cash.
A broader portfolio, combined with strong stock price performance in recent years, has changed the calculation of Bengen’s Law. For the new book, he assumed a 4.7% rule.
“The main reason for the change is that my research has become more sophisticated,” he said.
Bengen more or less practices what he preaches. When he retired in 2013, he followed an updated version of his rule and spent 4.5% of his savings in the first year.
“And that turned out to be too conservative,” he said. “The stock market was doing very well, so we were able to make an upward revision.”
He currently spends 4.9% per year.
Is the 4% rule still in effect?
The 4% rule remains prevalent in financial planning. It has also been the subject of endless criticism with articles questioning whether this rule is still valid or suggesting that it may no longer apply to most of us.
“Four percent is a general rule of thumb, but the reality is that people have to think about the real cost of being who they are or want to be in retirement,” Caleb Silver, editor-in-chief of financial journalism site Investopedia, said in a 2025 interview.
Schwab’s Williams said the 4% rule remains “a good starting point.” But modern retirement plans are living documents, he said. Retirees and their advisors can update spending goals annually based on life changes, investment returns, inflation, and other factors.
“For most people I talk to, their spending patterns for the next 20 to 30 years of retirement are not static; they are dynamic,” Douglas Ornstein, director of TIAA Wealth Management, told USA TODAY in 2025.
One reason the 4% rule remains so popular is because it speaks to the biggest fear of Americans approaching retirement: outliving their money. A recent study by Allianz Life suggests that we fear running out of money more than death itself.
“As humans, when you have complex challenges like how much to spend in retirement, that’s a scary question,” Williams said.
Many retirees follow the 4% rule. Some people get it wrong.
Many retirees follow Bengen’s rules to the letter.
“I get emails from different people every day, so I think some people take it literally,” Bengen said.
Not everyone understands the rules correctly. Bengen said some retirees mistakenly believe the goal is to spend exactly 4% of their savings each year.
Here’s how the original rule actually works:
If you retire with $500,000 in savings, you’ll spend $20,000 in your first year to supplement Social Security and other income. If the inflation rate is 3%, you will spend $20,600 in the second year. and so on.
Here’s another problem with the 4% rule. That said, it seems to be more effective for wealthy people.
The typical American between the ages of 55 and 65 has about $185,000 in household retirement savings, according to the 2022 Consumer Finance Survey.
Applying the 4% rule to $185,000 would give you $7,400 per year. There aren’t that many.
“There are a lot of families who don’t have any retirement savings,” Morningstar portfolio strategist Amy Arnott said in a 2025 interview.
Bengen’s rules are conservative. He designed the system with a spending rate that covers retirees in all economic scenarios and ensures that savings last into retirement.
The rule is based on “studies that tried to find the worst-case scenario among all retirees over the past 100 years,” Bengen said. “I think some retirees, many retirees, probably should be spending more.”
