Is the 4% Rule Still Safe? What the Research Says Heading Into 2027

How much can you pull from your portfolio each year without running out of money?

It's probably the most important question in retirement planning, and for more than 30 years the most common answer has been four words long: use the 4% rule.

The rule is simple, and that's why it stuck. But most people who quote it have never seen the research behind it, and a lot has changed since it was written. The man who created it has since raised his number. One of the best-known research firms in the country currently puts it slightly lower.

So which is it? Let's walk through where the 4% rule came from, what it actually says, what it leaves out, and how newer research has built on it.

Where the 4% Rule Came From

In October 1994, a financial planner named William Bengen published a paper in the Journal of Financial Planning titled "Determining Withdrawal Rates Using Historical Data."¹

Bengen wanted to know what would have happened to a retiree who started retirement in each year going back to 1926. Not average returns. Actual year-by-year returns and actual inflation, including the Great Depression and the brutal stretch of high inflation and falling stocks in 1973 and 1974.¹

His main test portfolio was 50% common stocks and 50% intermediate-term Treasury notes.¹ Here's what he found:

• A 3% starting withdrawal lasted at least 50 years in every historical case he tested.¹
• A 4% starting withdrawal never ran out of money in less than 33 years, and in most cases lasted 50 years or longer.¹
• A 4.25% starting withdrawal could have run out in as little as 28 years.¹

He concluded that for a retiree around 60 to 65 who needed the money to last at least 30 years, about 4% was the highest starting rate that had held up through every period in his data.¹ He called a 5% starting rate risky and said 6% or more was "gambling."¹

What the Rule Actually Says (It's Not 4% Every Year)

This is the part most people get wrong.

The 4% rule isn't "take 4% of your balance each year." It works like this:¹

1. In year one, withdraw 4% of your starting portfolio value.
2. Every year after that, take last year's dollar amount and adjust it for inflation.

That's it. After the first year, the 4% doesn't matter anymore. You're spending a fixed amount that rises with inflation, no matter what the market does.

So a retiree starting with $2,000,000 would take $80,000 in year one. If inflation runs 3% that year, the second-year withdrawal would be $82,400, whether the portfolio went up 20% or down 20%.

It also gives you a quick rule of thumb in reverse. If 4% of your portfolio covers your spending, your portfolio is 25 times your annual withdrawal. Need $100,000 a year from your investments? That's $2.5 million.

What's Changed Since 1994

Two updates are worth knowing about, and they point in slightly different directions.

Morningstar's estimate: 3.9% for new retirees. Each year, Morningstar publishes research on starting withdrawal rates. Its most recent study put the highest "safe" starting rate at 3.9% for people retiring in 2026, up from 3.7% the year before.² Unlike Bengen's original work, Morningstar's estimate is forward looking. It's built on its own forecasts for future returns and inflation, not just history.²

The assumptions matter here. That 3.9% figure assumes inflation-adjusted withdrawals, a 30-year retirement, a portfolio with 30% to 50% in stocks, and a 90% probability of having money left at the end.² It also leaves out Social Security and any other income outside the portfolio.² Morningstar's estimates move from year to year. They were 3.3% in 2021 and 4.0% in 2023.²

Bengen's update: 4.7%. Bengen kept working on his research and has since raised his worst-case starting rate to 4.7%, which he explains in his 2025 book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.³ ⁴ The biggest reason was diversification. His original study used just large U.S. stocks and intermediate Treasuries. His newer work uses seven asset classes, adding small, mid, and micro-cap stocks, international stocks, and Treasury bills.³ ⁴

Both numbers come with an important caveat. Bengen's figure is based on how portfolios held up through past markets, and there's no guarantee the future will be as forgiving. Morningstar's figure depends on its own return forecasts, which may or may not prove right.

Which one should you use? Honestly, the more useful takeaway is that thoughtful research lands in roughly the same neighborhood, somewhere around 4%, and that your own number depends on things neither study can know about you.

Why the First Few Years Matter So Much

If there's one idea worth understanding before you retire, it's this: the order of your returns can matter as much as the average.

This is called sequence of returns risk, and we've written about it before in The Investment Risk No One's Ever Heard Of.

Here's a simple hypothetical. Two retirees each start with $1,000,000 and withdraw $50,000 at the start of every year. Over 10 years they earn the exact same returns, just in opposite order.

Hypothetical illustration only. Returns are made up to show the effect of return order and do not represent any actual investment or index. Withdrawals are a flat $50,000 taken at the start of each year with no inflation adjustment. Taxes and fees are not included.

Same returns. Same average. A difference of roughly $261,000.

If neither retiree took any withdrawals, they'd end up with the exact same balance. The withdrawals are what change the math. When you're selling investments to pay the bills during a down market, those shares aren't around for the recovery.

Morningstar's research found the same pattern. Retirees who ran into poor returns in their first five years of retirement and didn't cut back on spending were much more likely to run out of money than those whose first five years were positive.² Bengen's original paper reached a similar conclusion and specifically warned against selling stocks after a bad stretch early in retirement.¹

That's also why market downturns feel different once you're retired. If you want more on how to think about that, see What Happens to Your Investments During a Recession?

What the 4% Rule Doesn't Account For

The 4% rule is a starting point. It was never meant to be a complete retirement income plan, and it leaves out several things that matter a lot for higher-income households.

Taxes. Bengen's original research assumed the money was held in tax-advantaged retirement accounts.¹ A $100,000 withdrawal from a traditional IRA is taxable income. The same withdrawal from a Roth IRA generally isn't, if the rules for qualified distributions are met.⁷ Which accounts you draw from, and in what order, can change how much you actually get to spend. Our post on Roth IRA vs. Traditional IRA covers the basic differences.

Social Security and pensions. Morningstar's 3.9% figure covers the portfolio only and excludes Social Security.² For most retirees, guaranteed income covers part of the bill. The more of your fixed expenses that are covered by Social Security or a pension, the more room you may have to be flexible with portfolio withdrawals. Morningstar's research also found that delaying Social Security pairs well with flexible withdrawal strategies.²

How people actually spend. The 4% rule assumes your spending rises with inflation every single year for 30 years. Real retirees don't usually spend that way. Research by David Blanchett found that inflation-adjusted spending tends to fall during retirement, by about 1% per year on average.⁵ He described a "retirement spending smile." Spending tends to be higher in the early, more active years, drifts down through the middle years, and rises again toward the end of life, when health care costs often climb.⁵

Retiring early. The 4% rule was built around a 30-year retirement.¹ ² Someone retiring at 55 could need their money to last 35 or 40 years. Bengen himself advised being especially careful with withdrawals for anyone retiring at 60 or younger.¹ If early retirement is on your radar, the Rule of 55 is one tool worth understanding.

Required minimum distributions. For most people retiring today, the IRS requires withdrawals from traditional IRAs to start at age 73, based on a life expectancy table.⁷ Under the SECURE 2.0 Act, that starting age rises to 75 beginning in 2033, which applies to people born in 1960 or later.⁹ At 73, the required amount is your prior year-end balance divided by 26.5, which works out to about 3.8%. At 75, it's divided by 24.6, or about 4.1%.⁷ Roth IRAs don't have required distributions for the original owner.⁷ One thing to keep in mind: an RMD is a required withdrawal, not required spending. You can reinvest what you don't need in a taxable account. But the tax bill on that withdrawal still applies.

Leaving money to family. If passing wealth to your kids or grandkids is a priority, a withdrawal rate designed to make your money last exactly as long as you do may not be the right target.

Flexible Withdrawal Strategies

The biggest weakness of the 4% rule is that it never adjusts. You give yourself the same inflation-adjusted raise in a great year and a terrible year.

Most retirees don't live that way. If the market drops 25%, many people naturally hold off on the kitchen remodel or the second big trip of the year. Research suggests that willingness to adjust can be worth a lot.

Guardrails. In 2006, Jonathan Guyton and William Klinger published research on what are now commonly called "guardrails."⁶ The basic idea: set a starting withdrawal rate, then check it each year. In the most common version, if your current withdrawal rate drifts 20% above where it started (because the portfolio fell), you cut your withdrawal by 10%. If it drifts 20% below where it started (because the portfolio grew), you give yourself a 10% raise.⁸

Their research found starting rates of 5.2% to 5.6% were sustainable at a 99% confidence level for portfolios with at least 65% in stocks, when the rules were followed consistently.⁶ With 50% in stocks, the maximum starting rate dropped to as low as 4.6%.⁶

There's a trade-off, and it's real. Your income moves around. An analysis published by Kitces.com found that a retiree using classic guardrails who started just before the 2008 financial crisis would have seen a 28% cut in inflation-adjusted spending.⁸ That's a big cut, and not everyone's budget can handle it.

Morningstar's flexible findings. Morningstar tested several flexible approaches and found that every one supported a higher starting rate than the fixed method.² For retirees willing to accept changes in their spending, the starting rate could be close to 6%.²

The question isn't really "which withdrawal rule is best." It's how much flexibility your life actually has. Someone whose essential bills are mostly covered by Social Security and a pension can handle a lot more variability than someone relying on the portfolio for the mortgage.

So Is the 4% Rule Still Safe?

As a starting point for a conversation, yes. It's held up well in historical testing for more than 30 years, and newer research from Bengen and Morningstar still lands in the same general range.

As a complete plan, no. It was never designed to be one.

A rule built on a 50/50 portfolio, a 30-year retirement, no taxes, no Social Security, and spending that rises with inflation every year is going to be wrong for almost everyone in one direction or the other. For some people it's too cautious, and they end up spending less than they could have during the years they'd enjoy it most. For others, especially early retirees or those who start right before a down market, it may not be cautious enough.

The most useful way to think about it is as a check on whether a plan is comfortable, tight, or somewhere in between. Your actual number comes from your spending, your mix of accounts, your other income, your taxes, and how much flexibility you're willing to keep.

Frequently Asked Questions

What is the 4% rule in simple terms? It's a guideline from William Bengen's 1994 research. You withdraw 4% of your portfolio in the first year of retirement, then increase that dollar amount by inflation each year after. In his historical testing, that approach lasted at least 33 years in every period going back to 1926.¹

How much do I need to retire using the 4% rule? Multiply the annual amount you need from your portfolio by 25. If you need $120,000 a year from your investments, the 4% rule suggests a portfolio of $3 million. Remember that this is before taxes and doesn't include Social Security.

Is the 4% rule still valid in 2026? Morningstar's latest research puts the highest starting rate at 3.9% for new retirees, using its own forward-looking assumptions.² Bengen's updated research puts his worst-case rate at 4.7% using a more diversified portfolio.³ Both are close to 4%, but neither is a guarantee.

Does the 4% rule include taxes? No. Bengen's original research assumed tax-advantaged accounts.¹ The withdrawal amount is before any income taxes you owe on it.

Does the 4% rule work for early retirement? The rule was built around a 30-year retirement.¹ If your retirement could last 35 to 40 years or more, a lower starting rate or a more flexible approach may be worth considering.

What is the difference between the 4% rule and guardrails? The 4% rule keeps your inflation-adjusted withdrawal the same regardless of markets. Guardrails adjust your withdrawals up or down when your withdrawal rate drifts too far from where it started.⁶ ⁸ That flexibility has supported higher starting rates in research, in exchange for less predictable income.⁶

Sources

1. William P. Bengen, "Determining Withdrawal Rates Using Historical Data," Journal of Financial Planning, October 1994 (reprinted March 2004): https://www.financialplanningassociation.org/sites/default/files/2021-04/MAR04%20Determining%20Withdrawal%20Rates%20Using%20Historical%20Data.pdf
2. Morningstar, "What's a Safe Retirement Withdrawal Rate for 2026?": https://www.morningstar.com/retirement/whats-safe-retirement-withdrawal-rate-2026
3. Advisor Perspectives, "Bill Bengen Boosts the '4% rule' to 4.7%," August 29, 2025: https://www.advisorperspectives.com/articles/2025/08/29/bill-bengen-boosts-the-4-rule-to-4-7
4. Rethinking65, "The Latest Worst-Case Retirement Withdrawal Rate: Bengen": https://rethinking65.com/the-latest-worst-case-retirement-withdrawal-rate-bengen/
5. David Blanchett, "Exploring the Retirement Consumption Puzzle," Journal of Financial Planning, May 2014: https://www.financialplanningassociation.org/journal/Pages/MAY14-Exploring-the-Retirement-Consumption-Puzzle-.aspx
6. Jonathan T. Guyton and William J. Klinger, "Decision Rules and Maximum Initial Withdrawal Rates," Journal of Financial Planning, March 2006: https://www.financialplanningassociation.org/article/journal/MAR06-decision-rules-and-maximum-initial-withdrawal-rates
7. IRS, Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/publications/p590b
8. Kitces.com, analysis of Guyton-Klinger guardrails versus risk-based guardrails (Justin Fitzpatrick and Derek Tharp, Income Lab): https://www.kitces.com/blog/guyton-klinger-guardrails-retirement-income-rules-risk-based/
9. Pullman & Comley, "SECURE Act 2.0 Changes to Required Minimum Distributions": https://www.pullcom.com/working-together/secure-act-2-0-changes-to-required-minimum-distributions

Disclosure

This material is for educational and informational purposes only and should not be considered investment, tax, or legal advice or a recommendation of any particular strategy. The hypothetical example in this post is for illustration only, does not represent any actual investment or the performance of any account, and does not reflect fees, expenses, or taxes. Withdrawal rate research cited in this post is based on historical data or third-party forward-looking assumptions, and results may differ materially in the future. Past performance is no guarantee of future results. All investing involves risk, including the possible loss of principal. Diversification does not guarantee a profit or protect against loss. Please consult your tax professional regarding your specific situation. Dreyer Wealth Management is not affiliated with Morningstar, William Bengen, Jonathan Guyton, William Klinger, or Kitces.com.