Capital Group Retirement retirees savings market swings nest egg
Capital Group says retirees comfortable with market swings may be able to withdraw up to 5.5% annually from their nest egg, above the traditional 4% rule Vitaly Gariev/Pexels

The 4% rule has long served as a rule of thumb for Americans drawing down a 401(k), the US workplace retirement account. Capital Group has now set out withdrawal rates of up to 5.5% a year for some retirees, provided they can accept income that rises and falls with investment performance.

The US investment manager published two withdrawal ranges on 21 October. Retirees seeking more predictable income are pointed towards an initial rate of 4% to 4.5%. A variable approach offers 5% to 5.5%, but annual payments move with the account balance.

The Two Ways to Draw Down a Retirement Pot

Under the fixed approach, retirees withdraw an initial percentage of their balance, and the dollar amount rises each year with inflation. On a $1 million (£750,000) pot, a 4% to 4.5% starting rate would provide $40,000 to $45,000 (£30,000 to £33,750) in the first year.

Capital Group says this approach can give a predictable income but carries a higher risk of running out of money later in retirement if markets perform poorly. It may suit retirees with limited spending flexibility who rely on withdrawals for fixed costs such as housing and healthcare.

The variable approach takes a percentage of the previous year's closing balance. Income can rise after strong markets and fall after weak ones, but Capital Group says the risk of depleting the pot is lower. It may suit retirees with greater spending flexibility or a legacy goal.

In its median modelled outcome, retirees using the variable approach kept around 74% of their initial balance at age 95, including required minimum distributions, the firm's research says. That is a hypothetical result, not a guarantee.

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What the 100,000 Scenarios Tested

Capital Group modelled more than 100,000 possible retirement paths using its own market assumptions. It stress-tested hypothetical scenarios, including market falls, inflation surprises, possible cuts to Social Security benefits and late-life healthcare costs.

Both approaches assume retirement at 65, and the fixed model assumes inflation of 2.25%. The figures come from the firm's own modelling, and Capital Group manages target-date funds, which shift towards bonds as a chosen retirement year approaches.

Kelly Campbell, Capital Group's director and multi-asset solutions asset class lead, said the ranges were 'not a one-size-fits-all prescription or guarantee' but a starting point for discussing 'the trade-offs between seeking income stability and asset preservation'.

Michelle Black, a solutions portfolio manager, said retirees must decide how to spend their savings amid market volatility, persistent inflation and 'uncertainty around Social Security'. Capital Group has also renamed its 2010–2025 target-date funds to include the words 'retirement income', a change that took effect in January.

Why Social Security Uncertainty Matters

The 2026 Social Security Trustees Report projects that the retirement benefit trust fund can pay full scheduled benefits until 2032. Without legislation, continuing income would then cover about 78% of those benefits.

The combined retirement and disability trust funds are projected to last until 2034, the report says. Capital Group advises retirees to treat withdrawal rates as one part of their total income, including Social Security.

The firm says the rates are 'suggestions only' and should be reviewed over time with a financial professional. The analysis is based on US accounts, Social Security and required minimum distributions, so the figures do not translate directly to UK pension drawdown. Actual outcomes will depend on individual circumstances and market performance.

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