What is the 4% Rule in Retirement?

November 17, 20237 min read
What is the 4% Rule in Retirement?
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways 

  • The 4% rule is a rule of thumb regarding the amount retirees should withdraw annually from their retirement savings to ensure that funds last.
  • The 4% rule assumes a person will live 30 years after the start of their retirement, but some retirees will live longer.
  • Because the 4% rule is based on stocks and bonds, it is subject to what is a constantly fluctuating market.

Advice abounds regarding how much one should save for their retirement. That is less the case when it comes to how much money one must withdraw each year of their retirement. After all, everyone wants to ensure that their funds last throughout their non-working years.

Enter the 4% rule. Exactly what is the 4% rule in retirement? That and more are explained below.

What is the 4% Retirement Rule?

The 4% rule is a withdrawal strategy regarding the amount retirees should withdraw annually from their retirement savings. The goal here is to make certain one’s funds last throughout their Golden Years.

The rule applies regardless of how much one begins with. It can help with planning, whether retirement is nigh or a number of years down the line.

The idea is to pull out just 4% of overall funds annually and enable the balance to keep growing. That way, one can ensure sufficient funds for at least 30 years.

What is the 4% Rule Calculation?

For the 4% rule, begin by adding up all one’s retirement accounts, investments, and other income. Four percent of that amount is the budget for the initial retirement year. Following each year, adjust for inflation.

For example, say a person has $1 million total for retirement. Their first-year budget will be $40,000. The following year, that $40,000 will be multiplied by the inflation rate. If the rate is 2.3%, the equation is $40,000 x 1.023. That means the second-year budget is $40,920. This process is repeated annually.

What is the History of the 4% Rule?

Financial advisor William Bengen came up with the rule in 1994. He wanted to provide a strategy for ensuring that people have enough funds throughout retirement.

To devise the strategy, he examined data on stocks and bonds from 1926 to 1976. Bengen’s rule of thumb is based on a 60% stocks, 40% bonds portfolio model.

What Does the 4% Rule Not Consider?

There are some factors that the 4% rule does not consider, including:

  • Medical expenses. It is difficult to predict what one’s healthcare expenses will be in the future.
  • Inflation. One never knows what the Inflation rate will be. That is why some financial planners recommend a flat annual 2% increase.
  • Market changes. Because the 4% rule is based on stocks and bonds, it is subject to what is a constantly fluctuating market. A downward turn could significantly affect one’s savings.
  • Personal tax rate. Everyone has their own tax rate, which is affected by factors including account types and sizes.

What are the Pros of the 4% Rule?

The primary benefits of the 4% rule include:

  • Easy guidelines. The annual calculation is relatively simple to follow.
  • Should last 30 years. The 4-percent-rule-in-retirement assumes a person will live 30 years after the start of their retirement. Still, one could live longer than that.

What are the Cons of the 4% Rule?

As with anything else in the retirement planning space, there are also potential drawbacks to the 4% rule:

  • Possibly insufficient savings. The 4-percent-rule-in-retirement rule assumes a 30-year retirement. Some people want to retire early or continue working well into their 70s. Health conditions may also alter the length of time savings will be needed.
  • Market could change. The 4% rule also hinges on historical market data, which may not be predictive of possible market changes.
  • Outmoded investment model. The 4% rule is based on an investment portfolio of 50% stocks and 50% bonds. However, more investors nowadays have more diversified holdings with varying growth potential. This could render the rule inaccurate.

What Should You Put Toward Retirement?

How much one should allocate for retirement depends on a variety of factors. Such variables include one’s lifestyle, retirement goals, and even where one resides.

Yieldstreet, the leading alternative investment platform, offers a retirement calculator that considers one’s personal retirement goals and anticipated income needs. The tool can help one establish the right time to retire and, thus, how much savings will be needed.

Is the 4% Rule Right for You?

Whether the 4% rule is a good fit will depend on one’s financial and investment goals. There is no single correct answer for everyone. It is important to consider one’s needs, wishes, and prospective disruptions such as healthcare costs or new grandchildren.

Further, whether the 4% rule is personally applicable hinges on where one’s assets are invested. If it is mostly stocks and bonds, such application is less appropriate.

How Can Yieldstreet Help Your Retirement?

Depending on one’s retirement goals, investing in alternatives can potentially help fund one’s hard-earned Golden Years.

Private-market alternatives, which include asset classes such as art, private debt, and real estate, are increasingly popular. Due to their low correlation to the stock market, alternatives can reduce overall portfolio volatility. They can also shield against inflation and provide tax favorability.

Historically, private markets have performed better than stocks in every economic downturn of the last 16 years. In addition to individual accounts, Yieldstreet offers investors opportunities to add private markets to their IRA or solo 401(k). In fact, more than 85% of the platform’s wide-ranging investments are available to retirement accounts.

It is not always necessary to realize income or capital gains whenever a private-market investment matures. Instead, one can let the funds compound in a tax-friendly retirement account.

Another benefit of investing in private markets is diversification. Creating a portfolio with a mix of asset types can reduce overall portfolio volatility. It can also potentially improve returns. In fact, diversification is key to long-term investing success.

Yieldstreet IRA

Strengthen your future with a private market IRA.

Alternative Investments and Portfolio Diversification

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

While it has shortcomings, the 4% rule is a relatively simple guide for planning one’s retirement budget. It is not for everyone, however, including those with a more diversified investment portfolio.

Remember, to mitigate the effect of volatility on retirement funds, private markets may be a sound alternative.

Disclaimer: All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information. Diversification does not ensure a profit or protect against a loss in a declining market.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, Orum.io and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure