The Popular Retirement Rule Millions Rely On Could Leave Some Seniors Short on Cash

Planning for retirement can feel overwhelming. So when there's guidance that makes a certain aspect of it easier, it's natural to want to follow it.

One popular retirement rule that's widely cited is the 4% rule. Developed in the 1990s by financial planner William Bengen, the strategy says you can withdraw 4% of your savings during your first year of retirement and then adjust that amount annually for inflation .

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The rule gained popularity because it provides a straightforward answer to one of retirement's biggest questions: How much can I safely spend without running out of money?

The 4% rule doesn't guarantee that your retirement savings will last forever. But it's been tested under different economic and market conditions to the point where it's likely to preserve your nest egg for 30 years.

While the 4% rule is still applicable today, it has a couple of big flaws. Not only might it put your nest egg at risk of running out, but it could also leave you short on funds to do the things you've always wanted.

The whole point of following the 4% rule is to avoid running out of money in retirement. But the rule makes certain assumptions that may not apply to you.

It assumes you have a fairly even mix of stocks and bonds in your portfolio, that bond interest rates are at least moderate, and that you're not retiring particularly early. But if these things aren't true, the rule becomes riskier.