Beyond the 4% Rule: Bengen's 4.7%, Guardrails, and What Early Retirees Should Use

The 4% rule has spent thirty years being quoted as a fact about markets. It is not one. It is the answer to a very specific historical question, and the person who asked that question has since revised his own answer upward.

William Bengen's 1994 study tested a portfolio of US large-cap stocks and intermediate-term government bonds against every rolling 30-year retirement in the historical record, and asked which fixed inflation-adjusted withdrawal rate survived all of them. The answer was about 4%. In his more recent work he widens the portfolio to seven asset classes — US large, mid, small and micro cap, international stocks, intermediate government bonds, and Treasury bills — and the same worst-case test returns roughly 4.7%.

That is a 17.5% increase in the spending a given portfolio supports. On a $2 million balance it is $94,000 a year instead of $80,000. It deserves more scrutiny than a headline.

What the number was always measuring

Here is the part that gets lost. SAFEMAX is not the rate that worked. It is the rate that worked in the single worst starting year in the historical sample. Across all the other cohorts the sustainable rate was far higher — Bengen puts the average at around 7.1%.

Sit with the size of that gap, because it is the whole argument:

Rate	What it is	Multiple of spending	Target on $80,000
7.1%	The average historical cohort	14.1x	$1,126,761
4.7%	The worst cohort, wide portfolio	21.3x	$1,702,128
4.0%	The worst cohort, 1994 portfolio	25.0x	$2,000,000

The difference between the top row and the bottom row is $873,000 of savings — well over a decade of work for most people. That is not a modelling artifact. It is the premium you pay for a plan that cannot adapt, priced against a disaster you probably will not get.

You pay it because you do not know your cohort in advance. Retiring in 1966 and retiring in 1982 looked identical on the day, and only one of them was survivable at 7%. Planning to the worst case is a rational response to that ignorance.

But it is not the only response. The other one is to stop being rigid.

Why the worst cohort is so much worse: sequence risk

Everything above is driven by one mechanism, and it is worth seeing in arithmetic rather than in prose.

Take a portfolio of $1,000,000 and ten years of real returns: −15%, −10%, +5%, +20%, +15%, +10%, +8%, +12%, +6%, +9%. The arithmetic mean is 6.0%; compounded, the ten years multiply the money by 1.7041. With no withdrawals, the order of those returns is completely irrelevant — multiplication commutes, and you finish with $1,704,106 either way.

Now withdraw $50,000 a year — a 5% rate — and run the identical returns in both directions.

Year	Bad order	Balance	Good order	Balance
1	−15%	$807,500	+9%	$1,035,500
2	−10%	$681,750	+6%	$1,044,630
3	+5%	$663,338	+12%	$1,113,986
4	+20%	$736,005	+8%	$1,149,104
5	+15%	$788,906	+10%	$1,209,015
6	+10%	$812,796	+15%	$1,332,867
7	+8%	$823,820	+20%	$1,539,441
8	+12%	$866,678	+5%	$1,563,913
9	+6%	$865,679	−10%	$1,362,521
10	+9%	$889,090	−15%	$1,115,643

Same returns. Same average. A $226,553 gap after a decade.

Carry both forward another twenty years at that same compounded return, still taking $50,000: the bad-order retiree ends at $747,917 and the good-order retiree at $1,405,822. Push the withdrawal to $55,000 and the bad-order portfolio hits zero in year 37, while the good-order one never comes close.

The mechanism is visible in the year-3 row. Selling $50,000 out of a portfolio that has already fallen to $681,750 liquidates 7.3% of it. Those shares are gone; they are not there for the +20% in year 4. Early losses are permanent in a way that late losses are not, and that asymmetry — not the average return — is what sets SAFEMAX.

Which tells you exactly where to intervene. The only years that matter are the bad ones, and the only lever that matters is not selling as much during them.

Guardrails: paying the premium only when the bill arrives

That is what variable-withdrawal strategies do. The best known is the guardrails approach from Jonathan Guyton and William Klinger: start at a higher rate, then let pre-committed rules adjust spending when the portfolio moves far enough.

A simple version. Start at 5%. Each year, compare planned spending to the current balance. If that ratio has risen more than 20% above your starting rate — above 6% — cut spending by 10%. If it has fallen more than 20% below — under 4% — raise it by 10%.

Run those rules against the bad-order sequence above, over the same thirty years:

Strategy	Total spent	Ending balance	Worst year's spending
Rigid 4% ($40,000)	$1,200,000	$1,588,071	$40,000
Rigid 5% ($50,000)	$1,500,000	$747,917	$50,000
Guardrails from 5%	$1,363,906	$1,250,694	$40,500

The guardrail plan cut twice, in years 2 and 3, taking spending from $50,000 down to $40,500 — a 19% reduction that stayed in place for eight years before the first raise. In exchange it spent $163,906 more over thirty years than the rigid 4% plan, and ended with two-thirds more money than the rigid 5% plan.

That is the actual trade, stated honestly. Flexibility does not conjure returns. It moves the cost of a bad sequence out of your final balance and into your spending in specific, identifiable years — and because it only charges you in the years the market is actually bad, you stop pre-paying for a disaster that may never arrive.

Where this breaks

Four caveats, and the first one is aimed directly at anyone reading this to retire at 45.

4.7% is still a 30-year number. Bengen's revision relaxes the portfolio assumption. It does not touch the horizon assumption. A retirement that starts at 45 and runs to 90 is 45 years, and every additional decade pushes the sustainable rate down. Early retirees are the exact group for whom the untouched assumption binds hardest, which means you cannot simply lift 4.7% out of the paper and drop it into a 45-year plan. The direction of the horizon correction is opposite to the direction of the diversification correction, and you owe yourself both, not the flattering one.

Guardrails assume you can actually cut. A 19% spending cut is trivial if a third of your budget is travel and restaurants, and impossible if it is a mortgage, insurance premiums, and childcare. Before adopting any variable strategy, work out what share of your spending is genuinely discretionary. If the answer is 15%, a rule that demands a 19% cut is not a plan — it is a promise you will break at the worst possible moment.

The trigger design is genuinely contested. Michael Kitces has argued at length that withdrawal-rate-based triggers of this kind fire at unhelpful times, because the ratio moves for reasons that do not always mean what the rule assumes. The principle of adjusting spending in response to the portfolio is solid. The specific thresholds are a modelling choice, not a law.

It is one country's history. Every figure here — 4%, 4.7%, 7.1% — comes from the US record, which is the most successful equity market of the twentieth century. The sample is a single path, and it is a flattering one.

The practical version

Decide which horizon you are actually planning for. Thirty years and forty-five years are different questions, and only one of them has been tested to death.
Pick your starting rate deliberately rather than inheriting 4% by default. Write down why.
Work out your discretionary share — the fraction of spending you could cut for three years without changing your life in ways you would refuse.
Let that share, not the model, set how much flexibility you are allowed to assume. A large discretionary share earns you a higher starting rate. A small one does not.
Commit the adjustment rules in advance, in writing, while you are calm. Rules invented during a 30% drawdown are not rules.

The headline is not that the 4% rule has been replaced by a 4.7% rule. It is that a single fixed number was always the wrong shape for the problem. The number encodes an assumption about your own rigidity, and that assumption is the one input on the list you actually control.

Run your own version

The Can I FIRE Yet? Calculator lets you set the withdrawal rate directly and reports the required portfolio, your implied rate on counted assets, and the gap — so the difference between 3.5%, 4%, and 5% becomes dollars and years instead of an argument. If the target still looks distant, the Coast FIRE Calculator works out the much smaller balance that compounds into it unaided, and the Roth Conversion & Capital Gains Headroom Planner handles the bridge-year tax decisions that come after a date is set.

Related reading: how much do you need to FIRE? for what the multiple is applied to, does home equity count toward your FIRE number? for which assets the rate is allowed to draw on, and the Coast FIRE catalyst for the milestone that arrives first.

This is an explanation of planning arithmetic, not personalised financial advice. Your situation, tax treatment, and risk tolerance are yours.