After years of saving, you’re now faced with the question: how do you spend your retirement savings?

Traditionally, many follow the “4% rule,” a withdrawal method that indicates retirees can take out 4% of their retirement savings in the first year, adjusting that amount for inflation for the next 30 years.

However, some experts suggest it may be wiser to adopt a more personalized approach that takes into consideration your health, expected lifespan, and family medical history. This way, you can enjoy your funds while ensuring they last throughout your retirement.

The 4% rule is derived from a conventional investment strategy known as the 60/40 portfolio (where 60% of investments are in stocks and 40% in bonds) and aims to prevent retirees from depleting their savings too quickly. Still, in 2022, the 60/40 portfolio faced its largest losses since 1937 due to rising inflation and increased interest rates, putting the rule’s reliability into question.

Even Bill Bengen, who originated the 4% rule, has acknowledged its diminishing relevance. He now recommends that retirees reduce their spending and withdrawal rates, according to The Motley Fool in 2022.

The challenge with these guidelines is that they apply a uniform lifespan to everyone, leading some retirees to adopt overly cautious spending habits and potentially forgoing enjoyable experiences, according to some financial advisors.

“The 4% rule presents what I call the ‘96% problem,’” explained Tim Maurer, chief advisory officer at SignatureFD in Charleston, South Carolina. “Focusing solely on that 4% figure can prevent you from enjoying 96% of your wealth that you’ve accumulated through hard work.”

Improved Lifespan Data Could Result in a Healthier Retirement

Since fearing outliving their savings is a common concern, the financial sector generally plans for individuals to live until 95. Yet, research from HealthView Services indicates that very few Americans actually reach this age.

For instance, nearly 30% of those aged 65 and over who have diabetes have less than a 1% chance of reaching 95 years old, according to HealthView. A typical male with type 2 diabetes can expect to live to his late 70s, while an average female might make it into her early 80s.

“Having accurate information about lifespan would enable us to create better financial products and allocate resources more effectively,” stated Jay Jackson, CEO of Abacus Life, which purchases life insurance policies. “Knowing this figure would be invaluable for financial planning.”

More precise data on longevity could enhance predictions of an individual’s lifespan and their healthspan, which refers to the number of healthy years they can expect to live, according to experts.

How Can We Improve Longevity Data?

Medical and family histories can provide essential insights that financial advisors can use to refine a retiree’s spending strategy, experts note.

Jackson recounted a 76-year-old client whose health profile indicated a life expectancy of only 8-9 more years. However, his retirement plan was based on an average lifespan of 95, assuming he had an additional 19 years to live.

By adjusting his withdrawal strategy to align with his health situation, his monthly retirement income nearly doubled while still preserving a substantial amount for future expenses and potential longevity-related costs, Jackson explained. Those extra funds could go towards activities, family gatherings, better nutrition, light exercises, and more—all contributing to healthier and more enjoyable years ahead.

Is A Customized Retirement Plan Realistic For Everyone?

“Definitely, we can create personalized plans for each individual,” stated Rob Burnette, investment adviser at Outlook Financial Center in Troy, Ohio.

Many financial advisors believe this customized approach is the key to helping retirees strike a better balance between lifespan and healthspan.

Burnette initiates each client meeting by discussing family history and asking simple, yet insightful questions such as “Are your parents and grandparents still alive?” to assess genetic longevity. He also inquires about health issues and medical histories to optimize planning.

Abacus Life takes this a step further with its extensive database of longevity information and actuarial data, according to Jackson. With customer consent via a signed HIPAA release, Abacus can access medical records and match clients with individuals who share similar health conditions, providing a more tailored estimate of lifespan and allowing for more effective planning based on this data.

While some people may hesitate to grant access to their medical records, there are alternative options. Free online health assessments, like the one from the American Academy of Actuaries, can offer a basic indication of potential lifespan. Abacus also provides a more detailed evaluation tool to help determine longevity, for instance.

These are just the preliminary steps, Experts have emphasized the importance of regular check-ins with an adviser. Ideally, these meetings should be face-to-face, but at the very least, they should take place via video call. This ongoing communication is crucial for adjusting your personalized plan as you grow older, especially in response to unexpected health issues or improvements in your well-being.

Furthermore, Jackson mentioned that facial analysis technology can provide insights into a person’s biological age.

“We recommend re-evaluating your situation every year,” Burnette advised. “Thanks to technology, this has become quite manageable. I prefer to meet with individuals in person because what they communicate over the phone doesn’t always match what I observe in person.”