Rethinking Retirement Withdrawals: Adapting Bengen's Framework for Today's Market

The retirement landscape is shifting. For decades, the 4% rule—pioneered by William Bengen in 1994—served as a cornerstone for retirees seeking to balance spending and portfolio longevity. But in 2025, the economic environment is markedly different: stock valuations are high, inflation is subdued, and market dynamics demand a more nuanced approach. Bengen's updated withdrawal framework, now emphasizing a 4.7% baseline and even higher rates for current retirees, offers a roadmap for navigating these conditions. Let's explore how modern retirees can adapt this evolving strategy to their advantage.

The Evolution of the 4% Rule

Bengen's original research identified a 4.15% withdrawal rate as the threshold for a 30-year retirement portfolio, later rounded to 4%. This rule was derived from historical market data, particularly the 1926–1996 period, which included severe downturns like the Great Depression and the 2008 crisis. However, today's retirees face a different reality.

The updated 4.7% rule reflects a more diversified portfolio: 55% stocks (split equally across U.S. large-cap, mid-cap, small-cap, micro-cap, and international equities), 40% intermediate-term U.S. government bonds, and 5% cash. This structure enhances resilience by spreading risk across asset classes and geographies. For 2025, Bengen even suggests retirees may safely withdraw 5.25% to 5.5%, citing moderate inflation and high stock valuations as factors that, while risky, also present opportunities.

High Valuations and the Paradox of Risk

The Shiller CAPE ratio, currently in the mid-30s, indicates historically high stock valuations. While this raises concerns about a potential market correction, Bengen's framework acknowledges that retirees can still increase withdrawals if they adopt dynamic strategies. For example, a 5.5% withdrawal rate assumes a diversified portfolio and a willingness to adjust spending during downturns.

The key is flexibility. Bengen advocates for a “COLA scheme” (cost-of-living adjustment), where withdrawals rise with inflation. In a low-inflation environment, this approach allows retirees to maintain purchasing power without overburdening their portfolio. Additionally, retirees should consider guardrails—such as capping annual withdrawals at 5% of the portfolio in down markets—to avoid depleting assets during volatility.

Risk Mitigation in a High-Valuation World

High stock valuations inherently carry more risk. To mitigate this, Bengen recommends:
1. Diversification Beyond Equities: Allocating 40% to bonds and 5% to cash provides a buffer during market declines.
2. Inflation Hedges: Treasury Inflation-Protected Securities (TIPS) and real estate investment trusts (REITs) can protect against unexpected inflation spikes.
3. Dynamic Rebalancing: Annual portfolio rebalancing ensures exposure to growing asset classes while capping losses in underperforming ones.

The Case for a Rising Equity Glide Path

Bengen's updated framework also emphasizes a “rising equity glide path”—increasing stock allocations over time. This strategy leverages the long-term growth potential of equities while allowing retirees to ride out short-term volatility. For example, a retiree might start with 55% stocks and gradually increase that allocation to 65% or 70% as they approach the end of their retirement horizon. This approach is particularly effective in low-inflation environments, where equities can outpace inflation without the need for aggressive spending cuts.

Practical Steps for Retirees

1. Assess Your Time Horizon: Retirees with 30+ years of expected longevity should stick to the 4.1% rule. Those retiring in 2025 may safely withdraw 5.25%–5.5%, provided they have a diversified portfolio and a plan to adjust spending.
2. Monitor Valuations and Inflation: Use tools like the Shiller CAPE ratio and the Consumer Price Index (CPI) to adjust withdrawal rates annually.
3. Leverage Income-Generating Assets: Utilities and healthcare stocks, which tend to be less volatile, can provide steady cash flow.
4. Delay Retirement If Necessary: If valuations appear overextended, delaying retirement by 6–12 months may allow for a more favorable entry point.

Conclusion: A New Era of Retirement Planning

Bengen's updated framework moves beyond the rigid 4% rule, offering a dynamic, personalized approach to retirement withdrawals. In a high-valuation, low-inflation environment, retirees can safely increase spending while preserving capital—provided they remain adaptable. The key takeaway is clear: retirement planning is no longer one-size-fits-all. By embracing diversification, inflation adjustments, and flexible withdrawal strategies, retirees can navigate today's market with confidence.

As Bengen's work demonstrates, the future of retirement planning lies in balancing caution with opportunity. For those willing to adapt, the path to a secure and fulfilling retirement is not only possible—it's within reach.