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As we start 2026, millions of pre-retirees are grappling with outdated financial guidelines that could unnecessarily delay their retirement dreams. One of the most persistent—and potentially misleading—is the classic "rule of 25," which suggests accumulating 25 times your expected annual retirement spending before quitting work. This stems from the well-known 4% safe withdrawal rate, pioneered by financial researcher William Bengen in 1994.

The logic is straightforward: If you need $50,000 per year in retirement (excluding Social Security or pensions), you'd require $1.25 million saved, withdrawing 4% initially and adjusting for inflation thereafter. For a higher-income earner making $100,000 annually and saving 20%—far above the national average—with an assumed 8.5% stock market return, reaching that nest egg could take nearly 30 years.

Yet even this benchmark has evolved. Bengen himself updated his research in 2025, raising the safe withdrawal rate to 4.7% based on more recent data and diversified portfolios. This adjustment effectively lowers the multiplier to about 21.3 times annual spending, offering a modest reprieve. However, rigid rules like these often overlook individual circumstances, market conditions, and innovative income strategies.

Closed-end funds (CEFs) provide a compelling alternative for generating reliable retirement income. Unlike traditional mutual funds or ETFs, CEFs trade on exchanges like stocks, often at discounts to their net asset value (NAV), and many employ leverage to amplify returns. Critically, they focus on distributing high yields—frequently 9% or more—directly translating stock market gains into cash flow without forcing investors to sell shares during downturns.

Take the Liberty All-Star Equity Fund (NYSE: USA) as a prime example. This broad equity CEF invests in blue-chip U.S. stocks, including giants like Microsoft, Visa, Amazon, Wells Fargo, and Broadcom. As of late December 2025, it offers a current yield exceeding 10.7%, with a long history of quarterly distributions.

At this yield level, that same $50,000 annual income goal requires roughly $465,000 in savings—dramatically less than the $1.25 million under the 4% rule. For our hypothetical $100,000 earner saving 20%, this could shave over a decade off the timeline to retirement.

Skeptics often question the sustainability of such high payouts, noting that CEF dividends can fluctuate with NAV and market conditions. However, USA's track record speaks volumes: Operating for nearly 40 years, it has navigated major crises—the dot-com bust, the 2008 financial meltdown, the pandemic, and more—while maintaining consistent distributions averaging around 11% historically when adjusted for entry prices.

The fund's share price may appear stagnant or declining over time due to its policy of distributing most gains as dividends. But reinvesting those payouts reveals the true power: Over decades, total returns have compounded to over 1,800%, turning steady income into substantial growth for those who choose to reinvest.

The beauty of CEFs lies in flexibility. Retirees can live off the dividends without touching principal, preserving upside potential and avoiding forced sales in bear markets—a common pitfall that erodes both income and capital. High yields also provide a buffer against inflation and sequence-of-returns risk, where early retirement withdrawals coincide with poor market performance.

Many top CEFs yield 9%+ while holding diversified portfolios of blue-chip stocks, bonds, and REITs. This approach not only supports generous payouts but positions investors for capital appreciation as discounts narrow or markets rise.

Of course, CEFs aren't without risks: Leverage can magnify losses, discounts can widen, and distributions may include return of capital in tough years. Thorough due diligence is essential, focusing on funds with strong management, sustainable coverage, and attractive valuations.

Outdated rules of thumb can create unnecessary anxiety, pushing retirement further out of reach. By incorporating high-yield CEFs into a portfolio, investors gain the potential for earlier financial independence, higher spending power, and greater peace of mind. As markets evolve and opportunities like these persist into 2026, rethinking traditional guidelines could unlock a more fulfilling—and sooner—retirement.

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