You spend decades saving for retirement. But once you stop working, a different question takes center stage:
How much can you withdraw from your retirement savings without running out of money?
For more than 30 years, the so-called 4% rule has been one of the most widely discussed guidelines for answering that question.
The basic idea is straightforward: A retiree could withdraw approximately 4% of their portfolio in the first year of retirement, then adjust subsequent withdrawals for inflation, with the goal of making the portfolio last for a 30-year retirement.
But retirement planning is rarely that simple.
The 4% rule was designed as a historical planning framework, not a universal formula for every retiree. Factors such as portfolio allocation, retirement length, market conditions, taxes, spending needs and legacy goals can all influence how sustainable a withdrawal strategy may be.
The question isn’t simply whether the 4% rule still works. It’s whether a particular withdrawal strategy works for your retirement plan.
The information provided here is for educational purposes only and does not constitute personalized financial, tax, or legal advice. Please consult a qualified professional regarding your specific situation.
What Is the 4% Rule?
The 4% rule originated with research conducted by William Bengen more than three decades ago.
Bengen examined historical market data and looked at 30-year retirement periods beginning as far back as 1926. His objective was to determine how much a retiree could initially withdraw while still having a high probability of making the portfolio last throughout the 30-year period.
His original research used a portfolio consisting of approximately 50% large-cap U.S. stocks and 50% bonds.
The result became known as the 4% rule.
Under a simplified example, a retiree with a $1 million portfolio would withdraw $40,000 during the first year of retirement. Future withdrawals would then generally be adjusted for inflation.
The rule became popular because it provided retirees with a simple starting point for thinking about retirement income.
But simplicity can also create problems.
The 4% rule was never intended to account for every variable that can affect an individual’s retirement.
The 4% Rule Was Always a Starting Point
One of the most important takeaways from Bengen’s updated research is that the 4% rule should not be treated as a universal prescription.
Real retirees have different spending needs, different sources of income, different portfolios and different life expectancies.
One retiree may have substantial Social Security income and relatively modest portfolio withdrawals.
Another may rely heavily on investments to fund their lifestyle.
Some retirees may want to spend more during the early years of retirement, while others may prioritize leaving a substantial legacy to their heirs.
Others may encounter unexpected expenses, changes in employment, health-related costs or other circumstances that alter their financial needs.
A single withdrawal percentage cannot account for all of these variables.
The 4% rule can be a useful planning assumption, but it is not a substitute for a comprehensive retirement income strategy.
Why a Fixed Withdrawal Rate May Not Be Enough
The 4% rule can provide a useful starting point, but applying the same withdrawal rate to every retiree can overlook some important differences.
Two people could enter retirement with the same portfolio balance but have very different financial circumstances.
One may have substantial Social Security or pension income and relatively modest spending needs. Another may rely heavily on their investment portfolio to fund their lifestyle.
Their retirement ages, expected longevity, tax situations, investment allocations and legacy goals may also be very different.
These differences can affect how much each person can reasonably withdraw from their portfolio.
A sustainable retirement income strategy should account for the individual, not just the portfolio balance.
Does That Mean You Should Withdraw 4.7%?
Not necessarily.
A higher baseline withdrawal rate may be supported under certain portfolio and historical conditions, but that does not make 4.7% the new universal retirement rule.
Consider two people who each retire with $1 million.
One may be 65 and planning for approximately 30 years of retirement.
The other may be 60 and want their portfolio to support them for significantly longer.
They have the same portfolio value, but their retirement plans have very different time horizons.
The longer the money needs to last, the more carefully withdrawals may need to be evaluated.
Bengen’s research illustrates this point. His analysis suggests that a longer planning horizon requires a lower maximum initial withdrawal rate.
For a 30-year horizon, Bengen cites a 5.81% “safemax” under a specific set of assumptions. For a 50-year horizon, that figure falls to 5.01%.
He describes the difference as an “insurance premium” for protecting the portfolio against the possibility of being depleted over a longer retirement.
The takeaway is simple:
Your retirement horizon matters.
How Long Does Your Retirement Need to Last?
Retirement planning often focuses on the date someone stops working.
But the more important question may be how long the retirement savings need to support them.
Someone retiring at 70 may have a different planning horizon than someone retiring at 55.
And even those estimates are not guarantees.
People are living longer, and a retirement plan may need to account for the possibility of living well beyond traditional life expectancy assumptions.
A longer retirement can create additional pressure on a portfolio because withdrawals continue for more years.
This is one reason a withdrawal strategy should be evaluated alongside:
- Age and retirement date
- Expected longevity
- Social Security income
- Pension income
- Portfolio allocation
- Spending needs
- Inflation
- Tax considerations
- Healthcare expenses
- Legacy goals
The objective is not simply to determine a percentage.
It is to determine how your assets can support your financial goals throughout retirement.
Diversification Can Influence Retirement Income
Bengen’s updated research also highlights the potential role of diversification.
His revised portfolio includes seven asset classes rather than relying on the original stock-and-bond combination.
Diversification can potentially provide exposure to different sources of return and different risk characteristics.
However, diversification does not eliminate investment risk.
A portfolio with more asset classes can still experience periods of significant volatility, and a retiree’s appropriate allocation depends on their specific circumstances.
This is particularly important because retirement introduces a different dynamic than the accumulation years.
During the accumulation phase, investors generally have time to recover from market downturns while continuing to contribute to their portfolios.
During retirement, withdrawals can occur at the same time that markets are declining.
That combination can make portfolio construction and withdrawal planning especially important.
Sequence of Returns Can Matter
One of the challenges of retirement withdrawals is that the order in which investment returns occur can affect the outcome.
Imagine two retirees with identical portfolios and identical average investment returns over several decades.
If one experiences significant market declines early in retirement while simultaneously withdrawing money, the outcome could be very different from someone who experiences those declines later.
This is one reason historical average returns alone do not tell the entire story.
A retirement strategy needs to consider not only how much a portfolio may earn over time, but also when those returns occur and how withdrawals interact with them.
That is another reason a fixed withdrawal percentage should be viewed as a planning starting point rather than a guarantee.
Taxes Can Change How Much You Actually Spend
Another important consideration is the tax treatment of retirement assets.
The original 4% rule assumes a tax-deferred portfolio, meaning the withdrawal rate is considered on a pretax basis.
But retirees may hold assets across multiple account types, including:
- Traditional IRAs
- 401(k)s and other employer-sponsored retirement plans
- Roth IRAs
- Taxable investment accounts
A dollar withdrawn from a traditional IRA can have different tax consequences than a dollar withdrawn from a Roth IRA.
Similarly, withdrawals from a taxable brokerage account may involve different tax considerations depending on the source of the funds and the nature of the investment gains.
As a result, a 4% or 4.7% withdrawal rate does not necessarily represent the amount a retiree will have available to spend.
The amount you withdraw and the amount you actually keep are not always the same.
This makes tax-efficient withdrawal sequencing an important part of retirement income planning.
Your Retirement Spending May Not Stay the Same
Another limitation of relying too heavily on a fixed withdrawal percentage is the assumption that retirement spending follows a predictable pattern.
In reality, spending can change significantly over time.
Some retirees may spend more during the early years of retirement while traveling, pursuing hobbies or spending more time with family.
Later, discretionary spending may decline.
At the same time, healthcare or long-term care expenses could increase.
A retiree may also experience a major one-time expense, decide to provide financial assistance to a family member or make a significant charitable gift.
A flexible retirement income strategy can account for these changes more effectively than simply applying the same percentage year after year.
What About Leaving a Legacy?
Retirement income planning isn’t always about maximizing spending.
For many high-net-worth families, the goal also includes preserving assets for children, grandchildren, charitable organizations or other beneficiaries.
That can change the way a withdrawal strategy should be evaluated.
A retiree who wants to spend down nearly all of their assets over a 30-year retirement may have a different strategy from someone who wants to preserve a substantial portion of their portfolio for the next generation.
Legacy goals can influence decisions around:
- Withdrawal rates
- Asset allocation
- Tax planning
- Roth conversions
- Charitable giving
- Estate planning
- Beneficiary designations
The “right” withdrawal strategy should therefore reflect not only how much income you need today, but also what you want your wealth to accomplish tomorrow.
The 4% Rule Is Not the Retirement Plan
The renewed discussion around the 4% rule is valuable because it encourages retirees to ask a more important question:
What withdrawal strategy makes sense for my financial situation?
Rather than automatically choosing 4% or 4.7%, retirees may benefit from looking at the entire financial picture.
That can include evaluating:
- How much income is needed each year
- Which sources of guaranteed income are available
- How the portfolio is allocated
- How long assets may need to last
- How withdrawals will be taxed
- How market volatility could affect the plan
- Whether spending can be adjusted during difficult markets
- How much wealth should remain for heirs
- How healthcare and long-term care costs could affect future spending
A sustainable retirement strategy is ultimately about more than a percentage.
It is about creating a framework for turning accumulated wealth into income while managing the risks that come with a long retirement.
How CKS Summit Group Approaches Retirement Income Planning
At CKS Summit Group, we believe retirement planning should go beyond asking how much you have saved.
The more important question is how those assets can work together to support your income needs, manage risk and help preserve the wealth you have worked to build.
A comprehensive retirement strategy can consider:
- Retirement income needs
- Portfolio allocation and diversification
- Withdrawal strategies
- Tax considerations
- Social Security and other income sources
- Longevity risk
- Healthcare expenses
- Estate and legacy goals
- Wealth preservation
The 4% rule can be a useful starting point for a conversation, but your retirement deserves more than a rule of thumb.
Your financial plan should reflect your goals, your circumstances and the life you want your wealth to support.
Frequently Asked Questions
Q1) What is the 4% rule?
The 4% rule is a retirement planning guideline suggesting that a retiree could initially withdraw approximately 4% of their portfolio in the first year of retirement and then adjust subsequent withdrawals for inflation, with the goal of making the portfolio last for a 30-year retirement.
Q2) Is the 4% rule still valid in 2026?
The 4% rule remains a widely discussed retirement planning guideline, but it should not be treated as a universal withdrawal prescription. William Bengen’s updated research increased his baseline withdrawal rate for a 30-year retirement to 4.7% based on a more diversified portfolio.
Q3) Can I withdraw 4.7% of my retirement portfolio?
Not necessarily. The 4.7% figure comes from Bengen’s updated research under specific assumptions. Your appropriate withdrawal rate may be different depending on factors such as your retirement horizon, portfolio allocation, spending needs, taxes and legacy objectives.
Q4) Does a longer retirement require a lower withdrawal rate?
Generally, a longer planning horizon creates additional challenges because the portfolio must support withdrawals for more years. Bengen’s research illustrates this by showing a lower “safemax” withdrawal rate for a 50-year horizon than for a 30-year horizon under his specified assumptions.
Q5) What is sequence-of-returns risk?
Sequence-of-returns risk refers to the potential impact that the order of investment returns can have on a portfolio during retirement. Significant losses early in retirement can be particularly consequential when withdrawals are occurring at the same time.
Q6) Do taxes affect the 4% rule?
They can. The original 4% rule assumes a tax-deferred portfolio and considers the withdrawal rate on a pretax basis. Retirees holding traditional retirement accounts, Roth accounts and taxable investments may have different after-tax spending amounts depending on which accounts they use.
Q7) Should retirees increase their stock allocation to support a higher withdrawal rate?
Not automatically. Bengen’s updated research uses a more diversified portfolio, but an allocation that is appropriate for one retiree may not be appropriate for another. Investment risk, income needs, time horizon and financial goals should all be considered.
Q8) Is the 4% rule appropriate for high-net-worth retirees?
It can provide a useful reference point, but high-net-worth retirees may have additional considerations, including tax planning, concentrated assets, charitable giving, estate planning and legacy objectives. A broader retirement and wealth strategy may be necessary.
Q9) What should I use instead of the 4% rule?
Rather than replacing the 4% rule with another universal percentage, consider using it as one planning assumption among many. A retirement income strategy can evaluate your spending needs, income sources, portfolio, taxes, longevity and legacy goals together.
Final Thoughts
The 4% rule changed the way many people think about retirement withdrawals.
But retirement planning has never been as simple as choosing a percentage and applying it indefinitely.
Updated research from the person who developed the original framework now suggests that a more diversified portfolio may support a higher baseline withdrawal rate under certain assumptions. At the same time, longer retirement horizons, taxes, market volatility, spending changes and legacy goals can all influence how much a retiree may reasonably withdraw.
The key takeaway isn’t that 4% is wrong or that 4.7% is right. It’s that no single withdrawal rate can account for every retirement.
Your retirement income strategy should be built around the resources you have, the lifestyle you want, the risks you face and the legacy you hope to leave.
CKS Summit Group can help you evaluate how retirement income, investment management, tax considerations and wealth preservation can work together as part of a comprehensive retirement strategy.
Contact us today to start the conversation. Visit summitgp.com.
Disclaimer: This content is for informational purposes only and should not be construed as tax, legal, or financial advice. Investment involves risk, including the potential loss of principal. Tax laws and regulations are subject to change. Past performance does not guarantee future results. Consult with your qualified financial, tax, or legal professional before making decisions regarding retirement withdrawals, investments, taxes, or other financial strategies.
