For decades, one number has anchored the retirement plans of millions of Americans. Four percent. Withdraw that share of your nest egg in year one, adjust it for inflation every year after, and the math should see you safely through a 30-year retirement. It was clean, simple, and for a long time persuasive enough that virtually the entire financial planning profession adopted it as shorthand for retirement security.
But something has shifted. The economic environment that gave birth to the rule looks very different from the one today’s retirees are walking into. Life expectancies are longer. Market valuations are higher. Bond yields have moved, inflation has spiked and cooled, and a new generation of researchers is asking whether a guideline forged in the early 1990s was ever intended to carry this much weight. The retirement industry is giving honest answers, and those answers are more complicated than a single percentage.
This is not a story about a rule that failed. It is a story about a rule that was always more of a starting point than a destination. Its own creator has been trying to update it for years, while the rest of the profession is only now beginning to catch up.
The Origin of a Rule That Defined an Era
In the early 1990s, financial planner William Bengen confronted a question his baby boomer clients kept raising: how much can I actually spend once I retire? There was little expert guidance on the subject at the time, so he decided to run the numbers himself using a spreadsheet and historical market data. In October 1994, he published his findings in the Journal of Financial Planning, and what is now known as the 4% withdrawal rule was born.
By considering both average returns and extreme historical scenarios, including the 1929 market crash, Bengen determined that a retirement portfolio made up of 60% equities and 40% fixed income assets should last over 30 years if a retiree withdraws only 4% annually. According to his model, even a retiree who entered retirement just before a major financial crisis would see their portfolio survive with at least 35 years of living expenses intact.
The original math actually produced a figure of 4.15%, but it was rounded down during the publication process and that round number stuck. The simplicity was part of the appeal. For retirees worried about outliving their savings, sticking to a rule provided structure and peace of mind.
Bengen’s data showed that a 3% withdrawal rate lasted 50 years in all test cases. A 4% withdrawal rate lasted 50 years in 41 of the 50 historical scenarios and lasted at least 35 years in every case. A 5% rate lasted 50 years in only 19 of those cases. A 6% rate ran out in less than 20 years in numerous scenarios. The 4% figure was not arbitrary. It was the number that protected retirees even in the worst recorded market conditions.
The Rule Was Always a Worst Case, Not an Average
This point is frequently misunderstood. As Bengen himself explained in a 2025 CNBC interview, his 4% rule was based on a worst-case situation: an investor who retired in October 1968 and ran into a perfect storm of poor stock market returns and very high inflation, which forced withdrawals up every year. The rule was calibrated against history’s harshest scenario, not its typical one.
Despite the rule’s popularity, some investors misunderstand a fundamental element of how it works. The strategy does not call for a 4% withdrawal rate every year. The 4% applies only to the first year of retirement. From that point, withdrawals are adjusted annually to account for inflation, similar to how Social Security benefits receive a cost-of-living adjustment.
What the Rule’s Creator Now Believes
Bengen himself has not stood still. He has been compelled to revisit and update the rule several times over the past three decades. His original research included only two asset classes, Treasury bonds and large-cap stocks. After adding a third class, small-cap stocks, he concluded that 4.7% would be a historically defensible safe withdrawal rate.
His 2025 book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, builds on his original research with decades of additional market data, more asset classes, and lessons from real-world retirees. As Yahoo Finance reported in August 2025, the central takeaway is that the 4% figure was always meant to be the floor, not the ceiling, and many people can safely spend considerably more in retirement.
Today, Bengen says most retirees can comfortably withdraw between 5.25% and 5.5% without worrying about running out of money. “If you take less, the odds are very high that you’re going to end up with a big pile of money when you retire and a lot of regrets for not having spent more during retirement,” he said.
Yet Bengen is also clear that inflation changes the calculation. He calls inflation the “greatest enemy of retirees,” and notes that he created the 4% rule during a stretch of relatively low, stable inflation, a context that does not always hold.
What Morningstar’s 2025 Research Actually Says
While Bengen argues retirees may be underspending, other researchers reach a more cautious conclusion. Morningstar’s 2025 State of Retirement Income report suggests that 3.9% is the highest safe starting withdrawal rate for retirees seeking consistent inflation-adjusted income, assuming a 90% probability of having funds remaining at the end of a 30-year retirement and excluding Social Security or other non-portfolio income.
That 3.9% base-case rate, up from 3.7% in Morningstar’s prior year report, applies to portfolios holding between 30% and 50% in equities with the remainder in bonds and cash. The uptick reflects improved capital markets assumptions from the previous year.
The gap between Morningstar’s estimate and the classic 4% figure is small in percentage terms. But on a $1 million portfolio, the difference between withdrawing 3.9% and 4% is just $1,000 in year one. Over decades of inflation-adjusted withdrawals, however, that gap compounds and can ultimately determine whether a portfolio holds or falls short.
The Morningstar research also shows how sharply the numbers shift for longer retirements. The 4% rule is calibrated for a 30-year retirement. Retire in your early 50s, and you may be looking at 35 to 40 years of withdrawals. Morningstar found that extending the drawdown period from 30 to 35 years reduces the safe starting rate meaningfully, with the highest starting safe withdrawal percentage for a 40-year horizon falling to just 3.3%.
Why a More Conservative Estimate Can Still Be Too Low
Here is the counterintuitive finding buried inside the 3.9% figure: for retirees willing to accept some variation in annual spending, the starting rate can go considerably higher. A more flexible approach to withdrawals could push the safe starting rate to as much as 5.7%, and Morningstar tested eight different flexible spending methods to measure their impact on the base case.
The constant percentage and endowment methods, in which a retiree withdraws a fixed share of whatever the portfolio is worth each year rather than a fixed inflation-adjusted dollar amount, allow for the highest starting safe withdrawal rate of 5.7%. The trade-off is that annual income fluctuates with markets rather than remaining predictable.
Retirees willing to tolerate some fluctuation in spending can start with a withdrawal rate approaching 6%. The right level of flexibility depends on the individual’s tolerance for spending changes and the degree to which fixed expenses are covered by non-portfolio income sources like Social Security.
The Threat That No Percentage Can Fully Solve
Regardless of the starting rate chosen, one risk looms over every retirement plan: the order in which market returns arrive. This is called sequence of returns risk, and it is arguably the single biggest threat to retirement security that a fixed withdrawal rule cannot fully address.
Sequence of returns risk is the danger that poor investment returns early in retirement, combined with ongoing withdrawals, will significantly reduce a portfolio’s value and limit its ability to recover. Ignoring this risk early in retirement can rapidly deplete a portfolio, increasing the likelihood of running out of money later in life.
Amy Arnott, a portfolio strategist with Morningstar Research Services, has called the first five years of retirement the “danger zone” for tapping accounts during a downturn. The math explains why. The order in which investment returns occur matters more than the long-term average return once withdrawals begin. This risk is most dangerous when combined with a high withdrawal rate, as it forces the retiree to sell more shares at depressed prices, permanently reducing their capital base.
What makes the early years so critical is that retirees who hit poor market conditions in the first five years and fail to scale back spending are far more likely to run out of money than those who navigate the early years with gains. High inflation early in retirement carries the same danger, because it forces withdrawal amounts higher at precisely the moment when the portfolio may be struggling.
Alternatives Gaining Ground in the Industry
The combination of Morningstar’s conservative base case and Bengen’s more generous revisions has created space for a broader range of strategies to gain traction. Many planners now incorporate more dynamic, adaptive withdrawal strategies, allowing retirees to adjust spending based on market conditions, personal circumstances, and other income sources to optimize portfolio longevity and flexibility.
The Guardrails Approach
Retirement income guardrails, also known as dynamic withdrawals, offer more flexibility to accommodate real-world market performance. The strategy was introduced by financial planner Jonathan Guyton and professor William Klinger in a 2006 paper, and is designed to maximize monthly income in retirement without jeopardizing the portfolio’s long-term value when markets decline. It is not only more flexible than the 4% rule but also gives retirees a clearer picture of what spending adjustments will be required if markets fall.
The guardrails approach is a dynamic and flexible retirement withdrawal strategy that sets specific upper and lower limits on withdrawal rates. This helps individuals maintain a balance between spending and preserving assets while adapting to market fluctuations and life changes.
For readers thinking about their own retirement timeline, understanding how early retirement years can affect a portfolio is one of the most practical areas where planning early makes a difference.
The Bucket Strategy
One widely recommended framework is the bucket strategy, which divides savings into three pools by time horizon: a short-term bucket with enough cash to cover two to three years of expenses, a medium-term bucket of bonds with more predictable yields, and a long-term bucket weighted toward stocks and left to compound over time.
The bucket approach separates spending decisions from market swings. When stocks fall, retirees draw from cash rather than selling equities at depressed prices. When markets recover, the short-term bucket is replenished and equities are left to keep growing.
The Role of Social Security Timing
Morningstar’s research adds another dimension that is often treated separately from withdrawal rate planning: when to claim Social Security. The research indicates that delaying Social Security is a wise decision for retirees aiming to boost lifetime income. The best-case scenario is when a retiree can delay Social Security and rely on non-portfolio income until benefits come online.
These strategies do have a trade-off: they tend to reduce the assets available for heirs or charity. Delaying Social Security may require higher early-retirement withdrawals from the portfolio, while putting a portion into an annuity reduces opportunities for portfolio compounding. Both decisions trade legacy wealth for larger personal lifetime income.
Asset Allocation Still Matters
One finding in the Morningstar research surprises some readers. More equity-heavy portfolios generally do not support the highest starting safe withdrawal rates because of their higher volatility and associated sequence of return risk. Today’s higher bond yields, by contrast, provide a stable source of cash flows for retirees seeking a consistent real income from their portfolios.
Morningstar found that the highest safe withdrawal percentages occur when retirees hold 30% to 50% in stocks. Many people assume retirement means holding fewer stocks, while others assume more stocks means more growth and higher withdrawal rates. But the data shows that too many stocks introduce volatility that makes retirees more vulnerable to the sequence of returns risk.
Read More: Retirement Savings Goals: How Much You Should Have at Every Age
What This Means for You
The retirement industry’s rethinking of the 4% rule is not a rejection of Bengen’s original insight. It is a maturation of the conversation. The rule was built as a worst-case floor, not a universal prescription, and three decades of additional research have clarified both its strengths and its limits.
Most financial experts now treat the 4% rule as a starting point, not a final answer. The right withdrawal rate depends on factors unique to each retiree: their retirement age, expected longevity, portfolio composition, spending patterns, and income from sources outside their portfolio. A 65-year-old with a pension and delayed Social Security benefits faces a fundamentally different calculation than someone retiring at 52 with no guaranteed income floor.
The most actionable guidance from current research comes down to four principles. First, the fixed 4% figure should be re-evaluated in light of your actual retirement length. A 35-year horizon demands more conservatism than a 30-year one. Second, flexibility in annual spending dramatically expands the range of safe starting rates. Every flexible strategy Morningstar researchers tested supported a higher starting safe withdrawal rate than the conservative 3.9% base case. Third, sequence of returns risk is most dangerous in the first five years of retirement, making a cash buffer or bucket structure worth serious consideration for anyone entering a period of market uncertainty. Fourth, non-portfolio income, particularly delayed Social Security claims, can meaningfully change the math in the retiree’s favor.
As Bengen himself noted, the 4% rule was always a guideline for retirees, not a commandment and not a guarantee. The researchers who followed him have spent 30 years trying to build on that honesty. The retirees who benefit most will be the ones willing to do the same, treating the rule not as a destination, but as the beginning of a much more personal calculation.
Read More: 5 Mistakes to Avoid in Your First Year of Retirement
Disclaimer: This information is not intended to be a substitute for professional financial advice, investment advice, tax advice, or legal advice, and is provided for informational purposes only. Always seek the guidance of a qualified financial advisor, accountant, or other licensed professional regarding your personal financial situation or investment decisions. Do not make financial, investment, or tax decisions based solely on information presented here. Past performance is not indicative of future results, and all investments carry risk, including the potential loss of principal.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.