When financial adviser William Bengen invented the 4% rule for retirement planning, Beanie Babies were a hot collectible and the movie Pulp Fiction had just debuted. The rule provides a general guideline for how much to withdraw in retirement safely so you don't outlive your money. But that was in 1994, and it’s fair to ask whether his formula still holds up.
Here's how the 4% rule works. Let’s say you start with a $2.5 million portfolio. In your first year of retirement, you can withdraw 4% of your total balance or $100,000. That sets your baseline. The withdrawal amount increases with the inflation rate each year thereafter. If inflation is 2% in year two, you withdraw $102,000.
