Many retirees need more flexibility than the 4 percent rule allows.

You’ve probably heard that it’s generally considered safe to withdraw 4 percent of your savings each year in retirement and adjust that initial amount for inflation. This popular 4 percent rule comes from a study that determined how to draw down a retirement portfolio without running out of money too soon. If you save up 25 times your annual expenses, drawing down 4 percent of your savings each year is likely to cover all your bills throughout retirement. However, it’s better to think of the 4 percent safe withdrawal rate as a guideline, rather than a rule. Here’s why the 4 percent withdrawal rate should only be used as a planning tool.

Your spending will probably change in retirement. The rule assumes you know how much you are going to spend in retirement. You need to have a good handle on your retirement expenses to determine how much you need to save to make the 4 percent rule work. Many people use their current expenses to project a portfolio value they need to achieve. But expenses in retirement may not resemble the costs you incur while working. You’ll probably be able to get rid of your commuting costs, but you might face new travel or entertainment costs in retirement. And there will certainly be health care costs and other emergency expenses. Retirement will have plenty of unexpected costs that you have no way of predicting before you retire.

Your spending probably won’t track inflation. While the 4 percent rule allows you to adjust your withdrawal amount for inflation each year, your personal expenses might not match the overall inflation rate. Retirees often use an increasing amount of health care services, and health care costs often rise faster than inflation. And some years you will get a big car repair bill or need to pay for extra dental care expenses. Real world spending will fluctuate, and you will need to find a way to cope with it.

You will be tempted to spend more when the market does well. It’s only natural to be looser with your wallet when you feel flush. However, the problem is that you are deviating from the plan, which can drastically change the sustainable withdrawal percentage. The 4 percent rule requires that you stick to it regardless of how the market performs, but not everyone has the ability to ignore double digit investment gains to stay the course.

You will probably want to decrease your spending when the market declines. Withdrawing less from your portfolio when the value is down will help it to recover faster. This will also counteract the increased spending of the good times and allow your money to last longer. But you are again changing the game plan when you no longer follow the fixed percentage determined at the start of retirement.

Aiming to save until you accumulate 25 times your annual expenses is a good goal to shoot for. But almost no one will be able to follow the 4 percent rule exactly. There’s a huge temptation to spend more when your investments do well and cut back when they perform poorly. And inflation adjustments might not track your personal bills or sudden expenses. That’s the primary reason why you can’t blindly follow this rule. The good news is that you can tweak the rule a little bit and still come out OK. Pretty much everyone who doesn’t retire at the worst possible moment can take out a little more or less than 4 percent without drastically changing their chances of running out of money too soon. Plus, the best defense every retiree possesses is the ability to adapt when the situation calls for it. Those who are flexible can probably spend a little more in some years as long as you are able to deal with a spending cut in other years.

By: David Ning

David Ning is the founder of