Planning for retirement is an important step to ensure financial security in the future. One of the most popular guidelines is the 4% Rule, first introduced by financial planner William Bengen in 1994. This rule suggests that one should withdraw 4% of their retirement savings each year without the risk of running out of funds over a 30-year retirement. However, with the rapidly changing dynamics of the economy, many have begun to question the effectiveness of this rule, especially as 2025 approaches.

Is the 4 Percent Rule still relevant and effective for planning future retirement? In this article, we will discuss the factors that affect the effectiveness of this rule and why considerations such as old-age insurance can also be a solution to ensure financial security in retirement.


What is the 4 Percent Rule?

The 4 Percent Rule is a principle used to determine how much money can be withdrawn from retirement savings each year. According to this rule, you can withdraw 4% of your total retirement fund each year without worrying about it running out within 30 years.


Why is the 4 Percent Rule Questionable?

While the 4 Percent Rule has become a benchmark in retirement planning, the following factors are starting to affect its effectiveness, especially as we approach 2025:

1. Lower Rate of Return on Investment
   One of the basic assumptions in the 4 Percent Rule is that there is a high rate of return on investment, around 7-8% per year. However, with lower interest rates and global economic uncertainty, investment returns in recent years have shown a downward trend. This can be risky for retirees who rely on savings to fund their needs.
   
   
2. Higher Inflation
   Higher inflation can reduce the purchasing power of your money over time. If inflation increases rapidly, 4% may not be enough to maintain the same standard of living as when you started your retirement. With higher inflation, you may need to withdraw more money from your retirement savings, which could accelerate the depletion of your retirement fund.
   
   
3. Longer Life Expectancy
   Due to longer average life expectancy, retirement can now last more than 30 years. This poses a greater challenge to retirement planning, as the 4 Percent Rule may not be enough to fund a longer retirement without significantly reducing reserves.
   
   
4. Market Fluctuations and Global Economic Risks
   Volatile investment markets and global economic tensions can threaten the stability of retirement savings. If the market takes a sharp downturn, you may be forced to withdraw more funds in the early years of retirement to make ends meet, which could drastically reduce your investment portfolio.
   
   

So, one way to complete retirement planning is by considering retirement insurance products. Retirement insurance can provide significant benefits in addressing financial uncertainty in the future, especially when relying on the 4% Rule may no longer be sufficient.