Beyond the 4% Rule

Once you’ve made the decision to retire, determining how much of your savings to tap each year can be nerve-wracking. You don’t want to withdraw too much and run out of money or withdraw too little and miss out on enjoying retirement to its fullest. Let’s look at some strategies to help you withdraw amounts that are “just right.”

Starting Point

You may have heard of the “4% rule,” which says you can safely withdraw 4% of your retirement savings each year. Although this rule can provide a good starting point, your actual safe withdrawal rate may be significantly higher or lower, depending on personal factors, including your:

• Retirement age,
• Life expectancy,
• Investment mix, and
• Risk tolerance.

What’s more, the 4% benchmark itself may change over time depending on prevailing market conditions, inflation prospects and other economic forces.

The rule was originally developed in 1994 by a financial planner who conducted a study of long-term stock and bond returns. The author found that despite market volatility over the years, there were no historical scenarios in which annual 4% inflation-adjusted withdrawals would have depleted a retirement portfolio in less than approximately 33 years.

Here’s how this generally works: Say you have $1 million in retirement savings. You’d withdraw 4% of your portfolio — $40,000 — in the first year of retirement. To keep pace with inflation and maintain your purchasing power, you’d increase each year’s withdrawals by the inflation rate. Assuming inflation is 3%, you’d withdraw $41,200 in year two, $42,436 in year three, and so on.

New Ways of Thinking

Recently, some financial analysts have fine-tuned the 4% rule to reflect current conditions. Each year, Morningstar researchers publish guidance on the “safe” starting withdrawal rate for retirees. For 2026, the rate is 3.9%, up from 3.7% for 2025. Morningstar develops the rate based on forward-looking assumptions about asset-class returns and inflation, resulting in a starting rate for inflation-adjusted spending under which there’s a 90% probability that funds will remain at the end of a hypothetical 30-year retirement period.

However, though the 4% (or 3.9%) rule can be a useful guideline for starting your planning, relying on it remains risky. As Morningstar acknowledges, “the ‘right’ safe starting withdrawal rate is a moving target, depending on equity valuations, bond yields, prospects for inflation, and a retiree’s own life expectancy and asset allocation, among other factors.”

For example, Morningstar’s 3.9% safe rate assumes a new retiree with an investment portfolio of 30% to 50% equities who is planning for a 30-year retirement. If your portfolio has a higher equity weighting, a lower rate may be needed to protect you against significant market downturns. If, however, you’re retiring at age 70 or have health issues, your time horizon may be shorter — say 20 or 25 years — which translates into a higher safe withdrawal rate.

The bottom line is that mechanically applying the 4% rule can have significant consequences for your retirement plan. It can lead you to overspend, creating a risk that you’ll outlive your savings. Or it can lead you to underspend and miss out on some of the pleasures of retirement.