4 Percent Rule in Retirement: Does It Still Work in 2026?
The 4 percent rule has been the default starting point for retirement withdrawal planning for decades. The idea is straightforward: withdraw 4 percent of your portfolio in year one, adjust that dollar amount for inflation each year, and your money should last 30 years. But the world your portfolio lives in looks meaningfully different than it did when that rule was first proposed, and in 2026, a lot of pre-retirees are asking whether it still holds up.
The short answer is: it depends on your situation. The longer answer is worth working through carefully before you build a withdrawal strategy around a number that may or may not fit your life.
Where the 4 Percent Rule Comes From
The rule traces back to research by financial planner William Bengen in the early 1990s. Bengen ran historical simulations using U.S. stock and bond returns and found that a 4 percent initial withdrawal rate, adjusted annually for inflation, had survived every 30-year retirement period in the data set without depleting the portfolio.
That research was rigorous and meaningful for its time. But it rested on specific assumptions: a 30-year retirement horizon, a portfolio split roughly between stocks and bonds, and U.S. market history that included some very favorable periods for bond returns.
Several of those assumptions may not fit your retirement today.
What Has Changed Since the Rule Was Created
Retirement Could Last Longer Than You Think
If you retire at 60 in 2026, planning for a 30-year retirement means your money needs to last until age 90. That used to be a conservative assumption. Now it is closer to a median outcome for a healthy non-smoker. Many financial planners are running projections to age 95 or even 100, particularly for couples where at least one spouse has a family history of longevity.
A longer horizon changes the math. The longer your retirement lasts, the longer your investments need to support your income needs. A withdrawal strategy that works for 30 years may not work the same way over 35 or 40 years.
That’s why your retirement income plan needs to consider your life expectancy, your spouse’s life expectancy, and the possibility that your money may need to last longer than you originally expected.
Sequence of Returns Risk Is Real
We talk a lot about investment returns when planning for retirement. But it’s not just how much your investments earn over time that matters. It’s also when those returns happen.
This is called sequence of returns risk, and it can have a significant impact on your retirement savings.
Think about it this way. If the stock market drops significantly during your first few years of retirement, you’re potentially withdrawing money from investments that have already lost value. That means you’re selling more shares to generate the same amount of income, leaving fewer shares invested to benefit when the market eventually recovers.
Even if the market delivers strong returns later, your portfolio may have a harder time recovering because you’ve already withdrawn some of those investments.
That’s why having a retirement income strategy that accounts for market downturns is so important. You don’t want to be forced to sell investments at the wrong time just to cover your living expenses.
Inflation Can Change Your Retirement Income Needs
One of the important features of the 4 percent rule is that it accounts for inflation. The idea is that you increase your withdrawal amount each year to help maintain your purchasing power.
But as we’ve seen in recent years, inflation isn’t always predictable.
When the cost of groceries, healthcare, housing, and other everyday expenses rises faster than expected, you may need to withdraw more from your retirement savings just to maintain the same lifestyle.
And those larger withdrawals can put additional pressure on your portfolio, especially if inflation is rising at the same time the market is struggling.
This is another reason your retirement income strategy needs to be flexible. Your spending needs will likely change throughout retirement, and your withdrawal strategy should be able to adjust along with them.
Bond Yields and Portfolio Construction Have Shifted
The original 4 percent rule was based on a portfolio that included a mix of stocks and bonds. The goal was to balance long-term growth with some stability during market downturns.
That principle still matters today. But investment markets, interest rates, and bond yields have changed considerably over the years. And more importantly, the right investment mix for your retirement may not be the same as someone else’s.
Your investment strategy should consider how much income you need from your portfolio, when you’ll need that income, how much risk you can afford to take, and how long your money needs to last.
Arguments for a Higher Withdrawal Rate in 2026
Not everyone agrees that the 4 percent rule is too aggressive. In fact, some researchers and financial planners argue that certain retirees may be able to safely withdraw more.
There are a few reasons for this.
First, if you have reliable income from Social Security or a pension, you’re not relying entirely on your investments to fund retirement. The 4 percent rule only looks at withdrawals from your portfolio, not other income sources. If Social Security covers a significant portion of your living expenses, you may have more flexibility with your investment withdrawals.
Another consideration is that retirement spending isn’t typically the same year after year. You might spend more in your early retirement years when you’re traveling and enjoying an active lifestyle, less in your middle years, and potentially more later in retirement depending on your healthcare needs. A withdrawal strategy that accounts for these changes may allow you to start with a higher withdrawal rate.
Finally, there’s the question of flexibility. The original 4 percent rule assumes you’ll continue increasing your withdrawals for inflation, regardless of how the market performs. But what if you’re willing to temporarily reduce your spending by 10 to 15 percent during a market downturn? That flexibility could make a higher starting withdrawal rate more sustainable.
Arguments for a Lower Withdrawal Rate
On the other hand, some researchers believe a more conservative withdrawal rate may be appropriate, especially given current market valuations and the possibility of longer retirements. For someone planning for 35 or 40 years in retirement, starting closer to 3.3 or 3.5 percent may provide a greater margin of safety.
The concern is what happens if you experience below-average investment returns during your first several years of retirement. Starting at 4 percent could put more pressure on your portfolio than you anticipated.
And even a small difference in your withdrawal rate can have a meaningful impact.
Consider a $1 million retirement portfolio. A 4 percent withdrawal rate provides $40,000 in the first year, while a 3.5 percent rate provides $35,000. That’s a $5,000 difference in just one year.
Over a 30-year retirement, those differences can add up, especially when you consider the investment growth you may be giving up by withdrawing more money.
What the 4 Percent Rule Does Not Cover
The 4 percent rule was designed to help answer one question: How much can I withdraw from my retirement savings without running out of money?
But there are several other important factors it doesn’t consider.
Taxes. Which accounts should you withdraw from first? How should you manage required minimum distributions? Could Roth conversions help reduce your lifetime tax bill? The timing and order of your withdrawals can make a significant difference in how much you ultimately pay in taxes.
Healthcare costs. Healthcare expenses can be unpredictable, especially later in retirement. A major medical expense or long-term care need could significantly impact how much you need to withdraw from your savings.
Social Security timing. Claiming Social Security at 62 versus waiting until 70 can create a very different retirement income picture. When you start collecting benefits affects how much you’ll need to withdraw from your investments, particularly in your early retirement years.
Required minimum distributions (RMDs). Depending on your birth year, RMDs generally begin at age 73 or 75. These mandatory withdrawals from traditional retirement accounts could require you to take out more than 4 percent in certain years, potentially creating additional tax consequences if you haven’t planned ahead.
These are all important pieces of your retirement income strategy, and they need to work together.
A More Useful Way to Think About Withdrawal Rates
Instead of asking whether 4 percent is the right withdrawal rate, consider a different question: What withdrawal rate makes sense for your investments, income sources, taxes, spending needs, and retirement timeline?
There’s no single answer that works for everyone.
Financial planners use several strategies to help create a more flexible approach to retirement withdrawals.
The Guardrails Method: This strategy establishes upper and lower limits for your withdrawals. If your investments perform well, you may be able to increase your spending. If the market declines, you temporarily reduce withdrawals.
The Bucket Strategy: This approach divides your investments into short-term, medium-term, and long-term buckets. Your short-term bucket typically holds enough cash or cash equivalents to cover one to three years of withdrawals, helping you avoid selling investments during a market downturn.
Income Flooring: This strategy focuses on covering your essential living expenses with reliable income sources, such as Social Security, pensions, or annuities. Your investments can then help fund discretionary expenses, giving you more flexibility to adjust withdrawals as needed.
Each of these strategies has its benefits, but none replaces a comprehensive financial plan. Your withdrawal strategy should work alongside your tax planning, estate planning, and anticipated spending needs throughout retirement.
How a CFP-Led Planning Process Applies This
The 4 percent rule can be a helpful starting point, but it’s not a complete retirement plan.
You need a withdrawal strategy that considers your specific retirement accounts, tax situation, Social Security benefits, healthcare needs, and how your spending may change over time.
At Korhorn Financial Group, our CERTIFIED FINANCIAL PLANNERS™ take this comprehensive approach through our OnePlan process: Discover, Design, and Deploy.
We look at how all the pieces of your financial life work together, including which accounts to withdraw from first, when Roth conversions might make sense, and how your insurance coverage fits into your overall retirement income strategy.
If you’re within 10 years of retirement and still relying on a general rule of thumb to determine whether your money will last, now is a good time to develop a personalized plan. At Korhorn Financial Group, we can help you develop a retirement income strategy that considers your entire financial picture, so you can move toward retirement with greater confidence.
Frequently Asked Questions
The 4 percent rule is a withdrawal guideline that says you can withdraw 4 percent of your portfolio in the first year of retirement, then adjust that dollar amount for inflation each year, and your portfolio should last 30 years. It originated from historical simulations of U.S. stock and bond returns.
It remains a reasonable starting point for many retirees, but it is not a universal answer. Longer retirement horizons, tax considerations, healthcare costs, and sequence of returns risk all affect whether 4 percent is too high, too low, or about right for your specific situation.
The biggest weaknesses are that it ignores taxes entirely, does not account for required minimum distributions, and assumes a fixed 30-year horizon. It also assumes you will never adjust your spending, which most retirees do not do in practice.
No. The rule applies to portfolio withdrawals only. If you have Social Security, a pension, or other guaranteed income covering part of your expenses, you may need to withdraw less from your portfolio — which means the 4 percent figure may be conservative or irrelevant depending on your income mix.
It depends on your financial situation. Some retirees may be able to safely withdraw more than 4 percent, especially if they have reliable income from Social Security or a pension and can adjust their spending when markets decline. Others may benefit from a lower withdrawal rate, particularly if they’re planning for a longer retirement. The right withdrawal rate depends on your investments, income sources, taxes, and spending needs.
The biggest risks include market downturns early in retirement, inflation, and the possibility of living longer than expected. The rule also doesn’t account for taxes, healthcare expenses, or changes in your spending needs. Relying on a fixed withdrawal rate without considering these factors could put your retirement savings at risk.
There is no single correct answer. A sustainable withdrawal rate depends on your portfolio size, asset allocation, guaranteed income sources, tax situation, spending pattern, and how long you expect retirement to last. Working with a CFP to build a personalized withdrawal strategy is more reliable than applying any fixed percentage.
The 4 percent rule accounts for inflation by increasing your withdrawal amount each year to help maintain your purchasing power. However, periods of higher inflation can put additional pressure on your retirement savings because you’re withdrawing more money to cover rising expenses. If inflation remains high or your investments underperform, your portfolio may not last as long as expected.
Sequence of returns risk is the danger that a major market decline in the early years of retirement, combined with ongoing withdrawals, permanently reduces your portfolio even if markets recover later. The 4 percent rule assumes average long-run returns, not a specific sequence. A bad early sequence can make a 4 percent withdrawal rate unsustainable even when long-run averages look fine.
RMDs begin at age 73 and are calculated based on your account balance and IRS life expectancy tables. In some years, especially if your balances have grown, your required distribution may exceed 4 percent of your portfolio. That forced withdrawal has tax consequences and may push you into a higher bracket. A withdrawal plan that accounts for RMD timing from the start is more effective than applying the 4 percent rule without considering it.
William Mock is a CERTIFIED FINANCIAL PLANNER™ at Korhorn Financial Group. He also holds his Chartered Financial Consultant (ChFC®) and Chartered Retirement Planning Counselor (CRPCSM) designations.
