Texas Tech University

The 4 percent rule no longer applies for most retirees


April 22, 2015

CNBC - For years, financial advisors have relied on a simple rule of thumb to guide people planning for retirement: withdraw 4 percent a year, and you have excellent odds of having enough money for 30 golden years.

PwC's findings add to concerns raised earlier about the viability of the 4 percent rule. Research published in 2013 by Michael Finke of Texas Tech University, Wade Pfau of The American College, and David Blanchett of Morningstar Investment Management found that using historical interest rate averages, a retiree drawing down savings for a 30-year retirement using the 4 percent rule had only a 6 percent chance of running out. But using interest rate levels from January 2013, when their research was published, the authors found that retirees' savings would grow so slowly that the chance of failure rose to 57 percent.

"The 4 percent rule cannot be treated as a safe initial withdrawal rate in today's low interest rate environment," they concluded.

Read CNBC's story here. This topic was also covered on MSN and CNN Money.