Personal Finance

Suze Orman Calls This Popular Retirement Rule "Dangerous." Here's Why

Maurie Backman

Published: February 25, 2025 8:34 am

Saving money for retirement is not an easy thing to do — namely, because it means giving up one thing or another. For example, if you’re someone who contributes $800 a month to a 401(k) plan, that’s $800 you’re not spending on a nicer home, a more comfortable car, or other things that make your life better.

Because you’re no doubt working hard to build your nest egg, the last thing you want to do is put it at risk once your retirement rolls around. So to that end, it’s important to manage your withdrawals carefully.

For years, experts recommended using the 4% rule to manage retirement savings. But if you ask financial guru Suze Orman, she’ll likely advise you against it, and for good reason.

Why the 4% rule doesn’t work anymore, according to Orman

Orman was recently quoted as saying, “It doesn’t work anymore. I think it’s very dangerous” in the context of the 4% rule. And she’s right.

If you’re not familiar with the 4% rule, it goes like this: Your first year of retirement, withdraw 4% of your portfolio. The following year, withdraw 4% plus whatever adjustment you need to account for inflation. And repeat.

If you follow the 4% rule, there’s a good chance your savings will last for 30 years, say the experts. For someone retiring at a conventional age, such as in their 60s, that may be sufficient.

But there are some big problems with the 4% rule that Orman draws attention to.

For one thing, she says, record-high inflation means the rule may not work for you. Also, the returns bonds generate in the coming years may not match the returns they offered back when the 4% rule was established.

The 4% rule also makes certain assumptions that may not be true for everyone. For example, it hinges on a roughly 50/50 split between stocks and bonds in your portfolio. If you’re invested more conservatively, then the rule no longer applies.

What Orman recommends instead

Orman thinks a 4% withdrawal rate puts people at risk of depleting their retirement savings prematurely. And that’s the last thing you want.

So rather than follow the 4% rule, Orman suggests a 3% withdrawal rate as a starting point. However, she likes to emphasize that this rate will differ from person to person, and that it’s best to come up with a withdrawal rate based on your personal situation, including your expenses, savings balance, asset mix, and life expectancy.

To that end, you may want to sit down with a financial advisor and get their input on how to manage your savings during retirement. Given how hard you’ve worked to build a nest egg, it makes sense to get personalized advice rather than follow some broad rule of thumb that may or may not work for you.

You should know that another thing the 4% rule lacks is flexibility. You may have larger expenses at different stages of retirement than others, so it’s a good idea to partner with an advisor who can help you adjust your withdrawals as your financial needs evolve.