Debate intensifies over 4% vs. 8% rule

by / ⠀News / January 31, 2025

The 4% rule has been a long-standing guideline for retirees when determining how much they can safely withdraw from their retirement savings each year. However, some financial experts suggest that an 8% withdrawal rate may be more appropriate in the current economic climate. Dave Ramsey, a well-known financial advisor, argues that an 8% withdrawal rate is possible and favorable for retirees over time.

He believes that the historical performance of the stock market, which has provided average returns of around 11% per year, supports this higher withdrawal rate. However, not all experts agree with this approach. A recent analysis by Morningstar suggests that the forward “safe” withdrawal rate for 2025 onward may actually be less than 4%.

They argue that a more conservative approach is still advisable, given the potential for market volatility and economic downturns. The debate between the 4% and 8% rule highlights the importance of considering individual factors when determining a safe withdrawal rate.

Assessing withdrawal rates for retirees

These factors include a retiree’s risk tolerance, portfolio allocation, and expected lifespan. One of the main risks associated with an 8% withdrawal rate is the timing of retirement. If a retiree begins withdrawing at this higher rate just before a market downturn, their portfolio could be depleted much more quickly than anticipated.

Additionally, with people living longer, there is a greater risk of outliving one’s savings if the withdrawal rate is too high. Ultimately, the decision of whether to follow the 4% rule, the 8% rule, or another approach altogether will depend on each retiree’s unique financial situation. Consulting with a financial advisor can help retirees create a personalized retirement plan that considers their individual circumstances and the current market conditions.

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As the debate continues, it is clear that there is no one-size-fits-all approach to retirement planning. By carefully considering their options and seeking professional advice, retirees can make informed decisions about their withdrawal rates and work towards a secure and comfortable retirement.

About The Author

Ashley Nielsen

Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music. 

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