: Jeffrey Greenberg/Universal Images Group via Getty ImagesBill Bengen, the creator of the 4% rule, has updated the figure to 4.7%.Bengen says this is still conservative, and a 5.5% spending rate in retirement is more practical.Sign up for First Trade, Business Insider's daily markets newsletter.The 4% rule for retirement savings is due for a revamp.The longstanding concept helps guide retirees on how much they can spend in retirement. Withdraw 4% of a portfolio, and then increase that amount for inflation in the following years. The nest egg should last for 30 years.Now, the rule's creator says retirees should be spending more.Bill Bengen, a financial advisor-turned-researcher who created the rule in 1994, recently updated it to 4.7%. That's because stock returns recently have been above average, giving investors more cushion in retirement.But when I spoke with Bengen last week, his rationale for urging people to spend more in retirement went beyond a red-hot stock market.Among some savers, there seems to be a fundamental misunderstanding of what the rule is designed to do: allow your portfolio to survive even the most extreme market environments.For example, it's designed to let your portfolio weather a bear market in stocks. It also accounts for high starting valuations — present in today's market — that tend to dampen average returns over the following decade.Realistically, you can probably be spending more than his 4.7% withdrawal rate, he said."It's important to understand that is really for the ultra conservative person who wants to be prepared for the worst that history has delivered," he said."Based on current market conditions, I think 5.5% is a more realistic withdrawal rate," Bengen continued. "I wouldn't use 4.7% as a starting point."New research from statistician Stefan Sharkansky supports the notion that 4% is too small of a withdrawal rate. Sharkansky told Morningstar this week that following the 4% rule could lead to your portfolio growing — not shrinking — by 50% over a 30-year retirement.There also seems to be a general tendency for some investors to be so conservative in their spending that they eventually die with a large chunk of their savings still left.According to an Employee Benefit Research Institute study published in June, about one-third of retirees in their mid-80s still have all of, if not more than, the original sum of money in their accounts when they first retired.Bengen says he calls this FOROM, or fear of running out of money, and that it drives the spending habits of too many people."It dominates their philosophy in retirement, and therefore, they'll just simply spend a lot less than they could, which to me is a real shame because they spent all these years saving and sacrificing, and I think they should be able to get the maximum possible out of it," Bengen said.Of course, having enough retirement savings to live on to begin with isn't a given. Many older Americans continue to have to work into their 80s to cover expenses.But if you're lucky enough to have built a nice stash of investments, you heard it from the man himself: if you had planned to withdrawal 4% of your portfolio per year in retirement, go ahead and spend a bit bigger.Read the original article on Business Insider
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