The Cost of Being Too Conservative with the 4% Rule
Why playing it safe can quietly change the outcome
The Rule Everyone Uses
I followed the 4% rule for years without thinking much about it. It’s one of those ideas that’s widely accepted and rarely questioned. It shows up in almost every conversation about financial independence (FI). For many, it becomes the default starting point.
Developed by Bill Bengen in 1994, it was meant to answer a simple question:
How much could someone withdraw each year without running out of money?
But there’s an important detail that often gets glossed over. It was designed to work during the worst-case periods (the Great Depression and the high inflation of the 1970s). Not average conditions. Worst-case ones.
I’d missed this distinction myself until recently. And that’s when I started to see it differently.
How many of us want a lifelong plan that directly impacts how we live based on the worst-case scenario?
When you build a plan around worst-case scenarios, you’re not just protecting yourself. You’re shaping what your life looks like on the other side of that decision.
What Safety Actually Costs
For a long time, I followed the same thinking. Use 4%. Be conservative. Give yourself some margin. It felt responsible.
But being safe and being right aren’t the same.
At some point I started running the numbers on what staying at 4% actually required. How many more years my wife or I would need to keep working to build a portfolio large enough that 4% covered our expenses. How much more we'd need to save each year to get there. I wasn't comfortable with either answer.
Yes, 4% is safer than 5%. And 5% is safer than 6%. Lowering your withdrawal rate will always reduce the risk of running out of money. I’ve seen suggestions of 3%, even 2.5%.
Yes, we might experience low portfolio returns for a prolonged period.
Yes, something could happen that impacts our savings or spending.
But does that mean you should plan for something even more conservative than a strategy already built to survive the worst 30-year period ever experienced?
In the short term, maybe. Over the long term, it’s highly unlikely.
At some point, you have to ask whether you’re protecting your future or limiting it.
Not finding the right balance could be wasteful.
The 5 Iron on a Par 5
I have a significant slice with my driver. It’s bad enough that I stopped using it off the tee and started hitting my 5 iron instead, even on par 5s where most people would never consider it. Safer. More predictable. Fewer disasters.
Eventually I started avoiding the first tee altogether on days when I knew people were watching. At some point the plan to avoid the bad outcome started to affect whether I showed up at all.
That’s what over-conservatism does. It starts as a reasonable adjustment and gradually becomes the thing that keeps you from playing the game the way it was meant to be played.
Building a retirement plan around the worst-case scenario works the same way. The adjustment feels responsible. But over time it shapes what the plan allows, and what it quietly rules out.
The Assumptions Behind the Number
The 4% rule maintains several assumptions:
· Your spending stays relatively consistent
· You won’t adjust along the way (except to account for inflation)
· And you need to survive the worst financial environments we’ve ever seen.
That level of protection comes at a cost. More years working. More saving. More delaying decisions. All to solve for a version of the future that may never actually happen.
Not a likely outcome. Not even a moderately likely one. The worst-case version.
And it rarely stops at 4%.
The 4% rule doesn’t exist on its own. It gets layered with other conservative assumptions: higher spending estimates, lower expected returns, longer time horizons. Each one feels reasonable on its own, but together, they push the target out more than most people realize.
Many people don’t over-save because they’re disciplined. They over-save because they’re unsure. And while useful, the 4% rule can reinforce that uncertainty.
It Was Never Meant to Be Fixed
To be clear, I’m not saying the 4% rule is wrong. I’ve used it. I’ve referenced it in other posts. It’s simple, familiar, and works well for quick calculations.
But it’s not the only way to think about this.
I started noticing a pattern. Every few years a new wave of thinking would emerge recommending something even more conservative—3.5%, even 3%—based on current market conditions or sequence of returns risk. And then the markets would keep performing. And the conversation would quietly move on.
At some point I started wondering whether the conventional wisdom always knew as much as it sounded like it did.
That skepticism got reinforced when I learned that even Bill Bengen had updated his own thinking over time. His more recent work points to a higher safe withdrawal rate—closer to 4.7%—and suggests higher rates may be worth considering depending on assumptions and investment allocations.
It was never meant to be a fixed answer.
Lately, I’ve started using 5% as a baseline in my own thinking. It forces a different conversation. There's more risk involved, but there's also more optionality. More room to decide how to spend time and money rather than locking into a narrower path.
The Impact: 4% vs 5%
Let’s make this real.
Say you want to spend $100K per year in retirement.
At 4%, you need $2.5M.
At 5%, you need $2.0M
That’s a $500K difference.
For a lot of people, that’s not just a number. It’s years of working longer at a point in life where your time starts to feel more valuable.
Or look at it from the other angle. If you already have $2.5M saved, 4% supports $100K per year while 5% supports $125K.
That extra $25K means less hesitation and more saying yes to the things you want to do.
It’s not too hard to imagine which version of retirement feels better.
What Happens in Real Life
In practice, people don’t use fixed withdrawal rates.
They retire with a portfolio and spend what they need. If markets struggle, they adjust. If things go well, they loosen up.
I don’t build my margin only through the withdrawal rate. I build it in other places too. My budget includes a miscellaneous expense line I’ve deliberately set higher than I expect to need. I’ve bumped up the health insurance line to account for uncertainty there. And I’ve added to my travel and hobbies budget lines so I can spend more or less in a given year depending on our situation, health, and what the economy is doing.
The margin is there. It’s just distributed differently.
I’m not telling you to ignore the 4% rule entirely. It’s still a useful tool. In some environments, it may even be the right one. But there's a difference between using it as a starting point and treating it as the ceiling on what's possible.
Starting closer to 5%, or even above, means accepting more uncertainty. But it also reduces the risk of over-saving for a future that may never happen.
And like everything else in the FI equation, it’s changeable.
If you spend more early or markets don’t cooperate, you adjust. If things go well, you have more flexibility later.
The Other Risk
The risk of running out of money is real, and it should be taken seriously. But there’s another risk that doesn’t get talked about as much: spending years optimizing for safety and never actually using the flexibility you built.
When every assumption is conservative, the result isn’t cautious—it’s excessive.
A plan can work perfectly on paper but still not translate into a better life.
Are you stacking conservative assumptions on top of each other without realizing it? It’s worth looking at how they add up and what they’re costing you.
The 4% rule isn’t inherently bad. But it was designed to minimize failure. That's not the same as building the retirement you actually want.
When you build a plan around the worst-case scenario, you should be clear about what you’re giving up in return.
— Brad
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This is meant to help you think through financial decisions and tradeoffs—not tell you exactly what to do. It’s general in nature and not personalized advice (see full disclaimer).