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What is the 4% rule?

Richard Kinyua

money getting into mobile phone in the 4% rule article on Ndovu

The 4% rule, often referred to as a cornerstone of retirement planning, is like a financial safety net designed to help you enjoy your golden years without the looming fear of outliving your savings. Imagine this: after decades of hard work and diligent saving, you’ve finally reached retirement. Now, the big question is, "How much can I withdraw each year and still make sure my money lasts?"

This is where the 4% rule comes into play.


The Birth of the 4% Rule

Developed by financial planner William Bengen in the 1990s, the 4% rule is based on historical data from U.S. markets. Bengen’s research showed that if a retiree withdrew 4% of their retirement savings in the first year, and then adjusted that amount for inflation each year thereafter, their nest egg would likely last for 30 years or more. This was a game-changer—a simple, actionable strategy to tackle the fear of running out of money.


The Mechanics: Simplicity at its Best

Here’s how it works:

  • Year One: You withdraw 4% of your total retirement portfolio. For example, if you’ve saved $500,000, you take out $20,000 in your first year.

  • Year Two and Beyond: Each year, you increase that withdrawal amount to keep up with inflation. If inflation is 2%, you’d take out $20,400 in the second year.


This approach provides a balance: you’re able to enjoy your retirement funds, but not so fast that you risk depleting them too early.


Why the 4% Rule Matters?

The brilliance of the 4% rule lies in its simplicity. It gives retirees a clear, easy-to-follow guideline that can take some of the stress out of retirement planning. It’s based on a blend of stocks and bonds, offering a mix of growth potential and stability.


Caveats: The Rule Isn’t Set in Stone

However, like any rule, it’s not without its critics. Some argue that the 4% rule might be too conservative in certain scenarios, or too aggressive in others—especially with today’s fluctuating markets and longer life expectancies. The key takeaway? The 4% rule is a great starting point, but it should be personalized to fit your unique financial situation and goals.



The 4% rule offers a straightforward strategy to help you navigate the complexities of retirement. It’s not a one-size-fits-all solution, but it’s a strong foundation to build upon as you plan for a secure and fulfilling retirement. So, as you dream about your future, consider how this rule might help you turn those dreams into reality—one calculated withdrawal at a time and you can count on us at Ndovu to help you in your saving and investment.


Disclosure:

Ndovu is a regulated Robo-advisory platform operated by Ndovu Wealth Limited (‘NWL’). NWL is a Fund Manager licensed by the Capital Markets Authority (Kenya).


The information provided on this platform and the products and services offered are intended solely for persons in regions and jurisdictions where such distribution and utilization are in accordance with local laws and regulations. Ndovu does not promote its services in regions where it lacks the necessary licenses; It is exclusively available to persons residing in countries where it holds a valid license or has regulated partners. Ndovu does not extend its services to citizens of the United States, Canada, Japan, and other restricted territories.


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While ETFs provide diversification through exposure to a basket of securities, they do not eliminate the risk of loss. Diversification does not ensure a profit or protect against a loss. These are non-cis products and are registered by the SEC.




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