Suze Orman slams the 4% retirement rule as 'very dangerous' — while its creator Bill Bengen now says it's too conservative. What's the new golden number for your golden years?

For decades, financial planners have suggested retirees follow the “4% rule” — coined in 1994 by financial adviser and author Bill Bengen. This rule states that those in retirement should plan to withdraw 4% of their assets each year, increasing or decreasing that distribution annually based on inflation. The amount plus solid management of the remainder should be enough to allow you to live through a long, comfortable retirement.

But in today’s challenging economic climate, where Americans are tired of battling high inflation, interest rate hikes, market volatility and other challenges, the feasibility of the 4% rule has been called into question by some people — including personal finance expert Suze Orman.

“It doesn't work anymore,” she told Moneywise in a May 16 interview. “I think it's very dangerous.”

Orman has shared how much money she thinks you should withdraw each year in retirement. In addition, Bengen has updated his own stance on the 4% rule and now suggests a slightly different figure.

But which strategy works best for retirees? Here are the arguments put forth by both financial experts say so you can figure out which one makes the most sense for your situation.

Orman's alternative to the 4% rule

The money maven says she would “not be using the 4% rule on any level.”

Why? Because there’s no way to predict what’s going to happen once you are actually living the retired life, she explains.

Economic volatility could change the cost of living to the extent that 4% doesn’t meet your needs. There could be stock market swings that impact the value of your retirement portfolio, or further interest rate hikes that make any debt or loans that you hold more expensive.

You could face personal challenges like a health problem that requires a big pile or steady stream of cash. The uncertainties are endless, which is why Orman advises Americans to “take the least amount possible out of retirement accounts.”

Orman says the less money you withdraw each year, the “better off you are.”

Watch now: Full interview: Suze Orman and Devin Miller of SecureSave delve into why so many Americans aren't prepared for their next financial emergency

If you need a percentage target to hit, Orman suggests you only withdraw up to 3% of your nest egg each year.

At the same time, she encourages Americans to “work until at least 70 or longer, so that your assets have more of a chance to build up” and delay taking Social Security benefits until the age of 70 so that you receive the maximum monthly sum.

“Stop this: 'Oh, I'm going to retire at 60. I'm going to start claiming Social Security at 62,’” she said.

The 4% rule creator says the opposite

Bengen based his retirement rule on several decades worth of statistics on retirement spending and stock and bond returns, which showed that retirees could reasonably expect their funds to last 30 years or longer if they withdrew about 4% from their nest eggs per year once they officially retire.

But he’s recently been compelled to revisit and update the rule given the current economic climate.

That’s because his original research only included two asset classes: Treasury bonds and large-cap stocks. When he added a third class, small-cap stocks, he said 4.5% would be a safe withdrawal rate.

But now, factoring in the impact of sky-high inflation, Bengen has argued that 4% might not cut it. In an appearance on the Bogleheads Live podcast in December 2022, Bengen revealed he’s upped his own withdrawal rate to 4.7% — quite different to Orman’s 3% target.