What is the 4% rule? How it works—and whether it still makes sense for retirement

In today’s changing economic environment, many people wonder whether long-standing retirement withdrawal strategies still apply. Inflation, market volatility and longer life expectancies all have made retirement income planning feel more complex.

One commonly referenced guideline is the 4% rule. For decades, it has helped retirees estimate how much they might withdraw from their savings each year without running out of money. But while the rule still can be useful, it never was meant to be a one-size-fits-all solution.

Rather than abandoning the 4% rule entirely, many retirees benefit from understanding how it works, where it may fall short and how it can fit into a more personalized retirement withdrawal strategy.

The 4% rule is a retirement withdrawal guideline suggesting that if retirees withdraw no more than 4% of their retirement savings in their first year of retirement—and adjust that dollar amount for inflation each year after—their savings could reasonably last about 30 years.

The rule was developed in 1994 by financial advisor William Bengen, who analyzed historical stock and bond returns. His research showed that lower withdrawal rates generally increased the likelihood that retirement savings would last longer.

In later years, Bengen revisited his findings and suggested that withdrawal rates slightly above 4%—closer to 4.5%—also could be sustainable in certain conditions. However, he cautioned that higher inflation could significantly affect outcomes.

Market conditions, inflation and the cost of living can shift significantly over time. Because of this, relying strictly on a fixed withdrawal rule may not always make sense in practice.

Several factors influence how long retirement savings last and estimating annual spending needs is rarely precise. For many retirees, the 4% rule works best as a reference point rather than a rigid rule to follow year after year.

Below are several reasons why flexibility matters when applying the 4% rule:

Americans today live longer than previous generations, increasing what’s known as longevity risk—the risk of outliving your savings.

According to U.S. Social Security Period Life Tables, a 65-year-old today can expect to live roughly another 18–20 years on average, meaning many retirees will live well into their mid- to late-80s or beyond—a timeframe longer than the 30-year horizon assumed by the traditional withdrawal rule.

If withdrawals continue at a fixed, inflation-adjusted rate for decades, there is a greater chance that savings could be depleted later in life.

Every retiree has a different risk tolerance and portfolio mix. The balance between stocks and bonds affects both investment returns and how much flexibility a withdrawal strategy can support.

Research from the well-known Trinity Study examined withdrawal rates across portfolios with different stock-to-bond allocations over 15-, 20-, 25-, and 30-year periods. The study found that portfolios with higher stock allocations generally had a higher likelihood of sustaining withdrawals over longer timeframes.

This research reinforced Bengen’s original findings while also showing that asset allocation plays a key role. A more conservative portfolio may provide stability but less growth, while a more growth-oriented portfolio may offer higher long-term potential with greater short-term risk.

Inflation steadily reduces purchasing power over time. Even modest inflation can have a meaningful impact on retirement income, especially over decades.

To maintain the same standard of living, retirees may need to withdraw more money as prices rise. Alternatively, some may choose to reduce spending to help preserve savings. Either way, inflation adds pressure that a fixed withdrawal rule doesn’t fully account for.

Market returns vary year to year. Experiencing significant market declines early in retirement—known as sequence-of-returns risk—can have an outsized effect on how long savings last.

While you can’t control market movements, you can respond thoughtfully. During down markets, some retirees choose to withdraw less, rely temporarily on less volatile assets, or draw from cash reserves rather than selling investments at depressed values.

This flexibility can help protect retirement savings during challenging market periods.

Taxes can significantly affect your net retirement income, depending on the types of accounts you use for withdrawals.

• Tax-deferred accounts (traditional IRAs and 401(k)s): withdrawals are taxed as ordinary income.
• Roth IRAs: qualified withdrawals are generally tax-free.
• Taxable brokerage accounts: investment gains may be taxed at capital gains rates, depending on income and holding period.

Additional income sources—such as part-time work, pensions, Social Security or rental income—also may push you into a higher tax bracket. In some cases, withdrawing less than 4% or delaying withdrawals can help manage taxes more effectively.

7 smart retirement withdrawal strategies

Understanding different retirement withdrawal strategies can help you pursue the lifestyle you envision while protecting the longevity of your savings. Many retirees find that combining income sources creates greater stability than relying on a single rule.

Explore common strategies

Rather than withdrawing a fixed percentage each year, some retirees divide retirement income into two distinct “buckets” based on timing and purpose.

Start by identifying predictable income sources, such as Social Security, pensions or rental income. Some retirees choose to add additional guaranteed income through tools like annuities, which can provide steady payments regardless of market conditions.

Others maintain several years of expenses in cash or high-yield savings accounts to help weather market downturns without selling investments at unfavorable times.

Dividend-paying stocks also may contribute income, although dividends are not guaranteed and can change over time.

Longer-term investments can remain focused on growth, while shorter-term needs are supported by more stable assets. Deciding how much risk to take depends on your comfort level, spending needs and overall goals.

A balanced approach often helps retirees adapt to changing conditions while maintaining confidence in their plan.

The 4% rule provides a helpful framework for thinking about retirement withdrawals, but it doesn’t account for every variable. In some years, a sustainable withdrawal rate may be lower or higher than 4%, depending on market conditions, spending needs, taxes and other income sources.

Rather than relying on a single rule, many retirees benefit from a flexible, personalized strategy that evolves over time. Working with a financial advisor can help you explore different scenarios and create a retirement income plan aligned with the future you envision.