My 70-Year-Old Friend Refuses to Retire: Are They Right to Fear the 4% Rule?

Retiring is a big life change with serious financial implications. Many people are reluctant to take the plunge because they are concerned that their money won’t last. This is the case for a Reddit user’s friend.

The original poster (OP) said that his friend is around 70. The OP is trying to convince the friend to retire, but the friend is very concerned that if he follows the 4% rule, he will run short of money later in life. So, can the friend trust the 4% rule or should he follow a different course?

What is the 4% rule?

First things first. The 4% rule is a rule of thumb that is designed to make your money last for the whole of your retirement. If you follow the 4% rule, you will withdraw 4% of your account balance in the first year. Then, every year, you can withdraw a little bit more to account for inflation. The premise is that if you stick with this safe withdrawal rate, you have around a 90% chance of your money lasting for at least 30 years.

Unfortunately, the OP’s friend has two concerns about the 4% rule. The first worry he has is whether he will be able to stick with withdrawing 4% or whether his financial needs are going to be greater. If he does need to take out more than 4% to cover his costs, he is really worried about running out of money.

The OP’s friend is also worried that even if he does follow the 4% rule, his money could still run short since his parents lived into their 90s so he most likely will really need his funds to last for a long time. 

How can you make sure your money lasts in retirement?

The OP’s friend is right to worry about the 4% rule. Experts recently revised the amount you can safely withdraw, with the new estimate now coming in at 3.7%. Since people are living longer and there are less optimistic projections for returns going forward, being more conservative is going to be important — especially for someone like the OP’s friend who most likely has a pretty long life expectancy. 

It’s also concerning that the OP’s friend isn’t confident that he can even stick to the 4% safe withdrawal rate. If there’s a risk that you will need to take more than 4% out of your retirement accounts to meet your needs, that could be a red flag that suggests you don’t have enough saved. You don’t want to jeopardize your security and wind up broke really late in life, so you should typically wait to retire until you are 100% confident that your nest egg is going to give you enough to live on comfortably at a safe withdrawal rate. In fact, it’s best to have a cushion rather than be cutting it close.

The OP’s friend should strongly consider talking with a financial advisor. A professional can shed light on whether you are truly ready to retire or not and can help you come up with a personalized strategy for withdrawing funds that doesn’t just rely on blanket rules of thumb. Since the OP is close to 70 already, he shouldn’t hesitate to get help sooner rather than later so he can make a plan to get his retirement underway.