What Is The 7 Percent Rule In Retirement

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Retirement planning can be a daunting task. With so many investment options, tax implications, and lifestyle choices to consider, it’s easy to feel overwhelmed. However, the 7 percent rule is a simple, people-first approach to retirement planning that can help you quickly achieve financial freedom. This guide will guide you through the 7 percent rule, explaining how it works, its benefits, and how to apply it to your retirement planning. By the end, you’ll feel confident in understanding this powerful retirement strategy and empowered to make informed decisions for your financial future.

Understanding the 7 Percent Rule

What is the 7 percent rule?

The 7 percent rule is a retirement planning guideline that suggests you can comfortably withdraw 7 percent of your retirement savings annually without running out of money. In addition, this rule assumes that your investments will continue to grow over time, allowing you to maintain your desired lifestyle throughout your retirement years.

The history of the 7 percent rule

The 7 percent rule builds upon the widely known 4 percent rule, which financial planner William Bengen introduced in the 1990s. While the 4 percent rule is still considered a safe withdrawal rate by many experts, others argue that the 7 percent rule offers a more aggressive yet viable approach for today’s investors.

7 Percent Rule Retirement

The Benefits of the 7 Percent Rule

Simple to understand

The 7 percent rule is straightforward, making it an attractive option for those intimidated by more complex retirement planning strategies. In addition, it offers a clear guideline for how much you can withdraw annually without jeopardizing your financial future.

Potential for higher income

By adopting the 7 percent rule, you may enjoy a higher income during retirement compared to more conservative withdrawal rates. This can translate into a more comfortable and enjoyable retirement lifestyle.


The 7 percent rule provides flexibility, allowing you to adjust your withdrawal rate based on your circumstances, investment performance, and market conditions.

What Is The 7 Percent Rule

How to Apply the 7 Percent Rule to Your Retirement Planning

Calculate your retirement savings goal.

To determine how much you’ll need to save for retirement using the 7 percent rule, divide your desired annual retirement income by 0.07. For example, if you want to have $70,000 per year during retirement, you’ll need to save $1,000,000 ($70,000 ÷ 0.07).

Create a savings plan.

With your retirement savings goal in mind, develop a savings plan that will allow you to reach that goal by your desired retirement age. Consider your current savings, investment strategies, and the amount you can contribute regularly.

Monitor your progress

Regularly review your retirement savings progress to ensure you’re on track to reach your goal. Then, adjust your savings plan to stay aligned with your objectives.

Factors to Consider When Implementing the 7 Percent Rule

Market volatility

The 7 percent rule assumes that your investments will continue to grow over time. However, market fluctuations can impact your portfolio’s performance, which may require you to adjust your withdrawal rate accordingly.


Inflation can erode your purchasing power over time, so factoring it into your retirement planning is essential. In addition, ensure that your investments are diversified and include assets that can help protect against inflation.


Longer life expectancies mean that your retirement savings may need to last for several decades. Therefore, it’s crucial to consider the possibility of outliving your retirement funds when implementing the 7 percent rule. As a result, you may need to adjust your withdrawal rate, plan for additional sources of income, or consider other strategies to ensure your financial security.


Taxes can significantly impact your retirement income, so planning is essential. Be sure to understand your tax obligations and consider strategies that can help minimize your tax burden during retirement.

Average 401K Return

Alternatives to the 7 Percent Rule

The 4 percent rule

As mentioned earlier, the 4 percent rule is a more conservative withdrawal rate that many financial experts recommend. This approach can provide a higher level of security, particularly for those concerned about market volatility or longevity risk.

Dynamic withdrawal strategies

Dynamic withdrawal strategies adjust your withdrawal rate based on investment performance, life expectancy, and inflation. These approaches offer greater flexibility and lower the risk of outliving your retirement savings.

Seeking Professional Advice

While the 7 percent rule is a simple and easy-to-understand guideline, it’s crucial to remember that everyone’s financial situation is unique. Consulting with a financial planner can help you tailor your retirement planning to your specific needs and goals, ensuring you’re on the right track to achieving financial freedom.

Use Annuities To Guarantee Not To Run Out Of Money

Annuities with guaranteed lifetime income riders provide a stable, predetermined income throughout retirement, regardless of market fluctuations or life expectancy. This alternative offers retirees peace of mind and financial security compared to the 7% rule, which may require adjustment due to market volatility or the risk of outliving savings. By eliminating these uncertainties, annuities with lifetime income riders can be a more dependable and worry-free retirement income solution.

Next Steps

The 7 percent rule retirement is an approachable and potentially rewarding strategy for planning your financial future. By understanding how it works, recognizing its benefits, and applying it to your retirement planning, you can take charge of your financial future and work towards a comfortable and fulfilling retirement. Consider the factors that can influence your retirement savings, consider alternative withdrawal strategies, and seek professional advice to create a plan tailored to your unique needs. Then, you can enjoy a financially secure and satisfying retirement with the right approach.

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Frequently Asked Questions

Can I retire at 62 with $400,000 in 401k?

Not only is it possible to retire at 62 with four hundred thousand dollars in your 401K, but you will also receive a guaranteed lifetime income of $25,400 annually! Thanks to annuities, this steady stream of income starting immediately will remain consistent and never decrease. So start planning for retirement today and enjoy the security of knowing you have the funds when you decide to take the plunge into retirement life.

Can I retire at 62 with 1 million dollars?

While a comfortable retirement is doable, you must factor in living expenses, taxes from withdrawals, and your desired lifestyle as part of your calculations. However, with careful planning and strategic budgeting, retiring on just one million can be within reach!

Can I retire at 62 with $2000000?

Absolutely! With two million dollars, you can retire comfortably at age 62. Investing in annuities is an attractive option for couples who want to ensure their retirement income will be protected and secure for the rest of their lives. Many annuity plans provide a guaranteed monthly payment for both spouses, which continues even after one spouse passes away – meaning your money will continue working hard until it runs out.

Can I retire at 62 with $1 million in 401k?

Retiring with a million dollars in your 401k at age 62 is achievable, but it won’t be effortless. To ensure you don’t run out of money before running out of days, you must invest and budget wisely. However, with the right financial management strategies, retiring on $1 million can bring a cozy retirement life!

Is $1000000 in 401k enough to retire?

If you have saved $1 million in your 401k, that could be enough to sustain a comfortable retirement. Depending on where you live, and living costs, withdrawing between $40,000 and $50,000 annually should provide more than enough income for some people.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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