Spending “extra” in the first years of retirement is a common mistake, and can be expensive, which is why many experts recommend a simple rule: withdraw 4% of your total savings in the first year and then adjust this amount to inflation to maintain purchasing power. Guidance is often presented as a starting point for planning a smoother retirement.
The logic is to help prevent the money accumulated over decades from running out too soon, especially when the pension is not enough to maintain the same standard of living. The rule also has a practical advantage: it makes it easier to create a predictable annual budget.
According to the Spanish economics portal Business Insider, the formula is straightforward. Anyone who has, for example, 100,000 euros saved, would have as a reference 4,000 euros in withdrawals in the first year (4% of the total), with updates in the following years according to inflation, to seek to preserve purchasing capacity.
What is the 4% rule (and why is it talking about 30 years)
According to the usual explanation, the rule points to a horizon of around 30 years of retirement, a period used as a reference in many planning scenarios. The idea is that, with a moderate and inflation-adjusted withdrawal, savings can last for decades, instead of “disappearing” in the first few years.
Even so, the experts themselves emphasize that it is not a rigid law. The percentage may be too high for some people and insufficient for others, depending on expenses, retirement age, income, assets and unforeseen circumstances.
There are also variables that cannot be calculated automatically: healthcare costs, support for family members, unexpected work at home, or changes in the market that affect investment returns.
When you might need to drop to 3% or 3.5%
In general, the 4% rule tends to suit those who have stable expenses, do not carry significant debts and have diversified savings, managing to withdraw an annual amount without creating excessive pressure on the budget.
Those who face very variable expenses in retirement, high payments, or the risk of having to spend a lot in the short term may have to reduce their annual withdrawal. This is where common adjustments to 3% or 3.5% arise, and, in more delicate cases, even less.
Age also matters. If the reform starts earlier, the money needs to last longer; If you start later, the horizon may shorten. Therefore, the same percentage can be prudent in one situation and risky in another.
Life expectancy and adaptation to each person’s case
In practice, the 4% rule works better as a “compass” than as a “calculator”. According to , it serves to guide decisions, but must be adjusted to monthly income (pension and others), total assets and personal priorities, such as traveling, helping children or maintaining a larger health reserve.
For many retirees, the safest thing is to review the plan every year: compare actual expenses with the forecast, confirm that inflation is being taken into account and assess whether the percentage withdrawn remains adjusted, avoiding sudden cuts later.
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