Is the 4% Rule Still Safe for Retirement Today?
According to Morningstar’s 2025 Retirement Income Study, a 4% withdrawal rate is still viable—but only under certain conditions. The research shows that a 4.0% initial withdrawal has a 90% chance of lasting 30 years in a diversified 40/60 portfolio. That’s higher than their 2021 estimate of 3.3%, but still reflects today’s challenging environment. Originally designed in the 1990s, the 4% rule assumes steady returns and fixed allocations—but the world has changed. Inflation has surged, bond yields remain compressed, and people are living longer. This article breaks down what the 4% rule was built for, what no longer holds, and how modern investors can rethink withdrawals.
Key Takeaways
- The original 4% rule was based on a very specific historical market environment.
- Inflation, longevity, and sequence risk make rigid rules more dangerous today.
- Some experts now suggest 3.3% or lower as a safer starting rate.
- Flexible withdrawal strategies may offer better sustainability than fixed rates.
- Portfolio structure and tax strategy also affect what’s truly "safe."
What the 4% Rule Was Designed For
The 4% rule originated from research by William Bengen in 1994. He analyzed U.S. historical returns and concluded that retirees could withdraw 4% of their initial portfolio value in year one, then adjust that number for inflation annually, with a high probability of not running out of money over 30 years. But the rule made some assumptions:
- A 50/50 stock-bond portfolio
- Historical U.S. returns and low inflation
- A 30-year retirement horizon
- No major behavioral mistakes
In a very different economic landscape, these assumptions may no longer hold.
Why Today’s Market May Break the Model
Several macro shifts challenge the original assumptions:
- Low bond yields: As of June 2025, the 10-year U.S. Treasury yield was approximately 4.29%.
- High inflation: Even if moderating, cumulative purchasing power loss since 2021 has eroded real returns.
- Longer retirements: On average, a 65-year-old today has about a 27% (33% for a 65-year-old woman and 21% for a 65-year-old man.) chance of living past age 90.
So what? The original 4% target may now overshoot what’s sustainable in this new environment.
- Hypothetical: Imagine a 62-year-old retiree with $1.2M in assets, aiming to withdraw $48,000/year. If markets decline early in retirement (a sequence risk event) and inflation stays elevated, their portfolio could shrink rapidly—leaving less to compound over time.
Flexibility May Matter More Than Percentages
Fixed rules like 4% offer simplicity, but may ignore personal and market realities. A growing body of research favors dynamic strategies—adjusting withdrawals based on returns, inflation, or age. Some models include:
- Guardrails: Capping spending changes within a floor and ceiling.
- Decision rules: Reducing withdrawals after bad years, increasing after strong ones.
- Floor and upside approaches: Covering essentials with guaranteed income, investing the rest for growth.
The Stanford Center on Longevity 2022 The Retirement Planning Disconnect Survey shows that investors who follow dynamic withdrawal approaches maintain more stable real spending levels over a 30-year period.
Behavioral Risk May Be the Bigger Threat
Even a perfect plan can fail if emotions take over. Many investors panic-sell during downturns, or overspend during bull markets. Others avoid investing altogether, fearing losses. Strategies like:
- Setting cash buffers for 1–2 years of spending
- Pre-committing to spending rules
- Separating "needs" from "wants" in budgets
...can help mitigate emotional decision-making.
Rules Should Adjust, Not Disappear
The 4% rule isn’t dead—but it isn’t gospel. It’s a starting point. Adapting to today’s longer retirements and shifting returns means building in flexibility, buffers, and behavior-aware tactics.
