Archive · 6 Sep 2026
Why the 4% Rule May Fail Early Retirees
The 4% rule is a guideline for taking money from retirement savings each year.
It was designed for people whose retirement might last about 30 years.
Someone retiring at 45 may need money for 40 years or longer.
Taking out too much money could make the savings run out early.
Market prices can also fall just after retirement, making withdrawals especially risky.
Keeping some money in safer debt or cash-like investments can help pay bills during bad markets.
Some experts suggest keeping two or three years of expenses safe, while others suggest five to seven years for early retirees.
People should also plan for rising prices, medical costs, and emergencies.
The right plan depends on each person’s spending and financial goals.
The 4% withdrawal rule was based on United States market data and a 30-year retirement period.
People retiring around age 45 may need their portfolios to fund 40–45 years of expenses.
Experts suggest considering withdrawal rates near 3–3.5%, but emphasize there is no universal formula.
Holding two to seven years of expenses in debt or liquid investments can reduce forced equity sales during downturns.
Early retirees should plan for inflation, healthcare costs, emergencies, and replenishing their safer asset bucket.
- Who
- People retiring in their 40s or early 50s, along with financial experts including Sandeep Jethwani, Sanjiv Bajaj, and Rahul Jain.
- What
- Financial experts are examining why the 4% retirement withdrawal rule may be unsuitable for early retirees and recommending longer-term portfolio safeguards.
- When
- The guidance applies to retirement planning, particularly for people retiring around age 45 and funding several decades without employment income.
- Where
- The discussion focuses on early retirees in India, while the 4% rule originated from United States market data.
- Why
- Early retirees may face 40–45 years of expenses, market downturns, inflation, healthcare costs, taxes, and the risk of selling equity investments at depressed prices.
More Conservative Buffer
Flexible, Individualized Planning
Safe-asset runway
More Conservative Buffer
Sandeep Jethwani recommends five to seven years of essential expenses in fixed-income assets because early retirees lack salary income and face a longer investment horizon.
Flexible, Individualized Planning
Sanjiv Bajaj and Rahul Jain suggest that two to three years of expected living expenses in debt or liquid instruments may provide a practical buffer.
Withdrawal rate
More Conservative Buffer
A lower starting rate of around 3–3.5% may be prudent for someone retiring early, according to Sanjiv Bajaj.
Flexible, Individualized Planning
Sanjiv Bajaj and Sandeep Jethwani both caution that no single withdrawal rate applies to everyone; spending, inflation, healthcare, portfolio structure, and legacy goals must be considered.
Portfolio use during downturns
More Conservative Buffer
Essential costs should be covered by fixed income, with equity sales avoided during market corrections whenever possible.
Flexible, Individualized Planning
Lifestyle expenses can be funded through equity and hybrid investments, while the appropriate balance should evolve with the investor’s asset allocation and circumstances.
- Traditional rule
- The 4% rule uses a first-year withdrawal of 4%, with later withdrawals adjusted for inflation.
- Original basis
- William Bengen developed the rule in 1994 using United States market data, a balanced stock-and-bond portfolio, and a 30-year retirement period.
- Early-retirement horizon
- A person retiring at 45 could need to fund approximately 40–45 years of expenses.
- Suggested withdrawal range
- Sanjiv Bajaj said an initial withdrawal rate of about 3–3.5% could be considered as a broad reference for early retirees.
- Debt runway options
- Sanjiv Bajaj and Rahul Jain suggested two to three years of expenses in debt or liquid instruments; Sandeep Jethwani suggested five to seven years of essential expenses.
- Essential expenses
- Groceries, utilities, insurance premiums, and basic healthcare can be funded from fixed-income assets.
- Additional safeguards
- Adequate health insurance and a separate contingency reserve can help protect long-term investments.