Retirement Withdrawal Strategies: Does the 4% Rule Still Work Today?

Going into retirement with the right withdrawal strategy can bring you tremendous peace of mind about your finances. Not having the right withdrawal strategy in retirement can mean wondering if you need to go back to work with every dip in the stock market.

That begs the question: “what is the ‘right’ retirement withdrawal strategy?”

The answer will be unique to each individual’s situation, based on different factors such as their spending needs, goals, and life expectancy.

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What is the 4% Rule for Retirement Withdrawals?

One of the most well-known withdrawal strategies is the 4% Safe Withdrawal Rate Rule, created by William Bengen in 1994. His objective was to determine a safe withdrawal rate in planning for a 30-year retirement. Over the years, many retirees have used the 4% Rule as a starting point to determine a withdrawal rate that balances their spending needs with portfolio longevity.

But is the 4% Rule still appropriate for today’s retirees? Let’s take a closer look.

What the 4% Rule Assumes

First, it will help to understand what assumptions Bengen made in his initial 4% calculation.

• The study sought a withdrawal rate that delivered a high probability of success for a 30-year retirement

• A retirement portfolio invested 50% in stocks and 50% in bonds

• Stock market data was based on performance from 1926 – 1992

• The study did not factor in the impact of income taxes

He concluded that a retiree planning for a 30-year retirement could safely withdraw 4% of their savings in their first year of retirement. Each subsequent year the amount of the initial withdrawal could be increased by the rate of inflation to maintain their purchasing power.

Example: Retiree has a nest egg of $1,000,000. Following the 4% rule, they can withdraw $40,000 in the first year. Inflation was 5%, so the following year they can increase their withdrawal by 5% ($40,000 x 1.05) = $42,000.

In practice, many retirees follow the bucket strategy to keep a cash reserve for near-term withdrawals while allowing the equity portion to grow for their long-term needs. Dividends and interest from the investments are used to replenish the cash bucket and/or regular rebalancing occurs to keep cash available.

In interviews since his initial study, Bengen has said that two factors can reduce the safe withdrawal rate: 1) encountering a stock market decline early in retirement and 2) experiencing high inflation during retirement. That tracks with what we know about Sequence of Withdrawal Risk posing a serious threat to a retirement plan.

Let’s look at what has changed about the 4% rule since its initial publication.

Updates to the 4% Rule in 2025

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Since his initial study, Bengen has updated the rule to incorporate a more diversified investment portfolio (including international equities) and current inflation rates.

His new book “A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More” was released in 2025 and in it he provides his findings that support a new safe withdrawal rate.

The result? The 4% rule has been increased to the 4.7% rule.

Going back to our retiree example earlier, that means a hypothetical $1,000,000 portfolio can accommodate a $47,000 withdrawal in the first year. That can be increased each year by the rate of inflation.

Bengen has said that 4.7% is a “worst-case scenario” that would persist through even the worst historical periods of stock market returns.

The increase is attributed to his analysis of investment returns for hundreds of retirees going back to 1926. Implementing a more diversified portfolio also resulted in the higher safe withdrawal rate.

Still, the future is uncertain and no strategy guarantees that the retiree will never run out of money.

Pros and Cons of the 4% Rule for Retirees

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In evaluating the 4% rule, there are two camps when it comes to its criticisms. One group believes that a 4% withdrawal rate is too much, and calls portfolio longevity into question. The second group argues that a retiree can withdraw more than 4% and potentially increase their quality of life by having more spending money.

Argument for a Lower Withdrawal Rate (More Conservative)

In its 2024 edition of “The State of Retirement Income”, Morningstar concluded that a 3.7% withdrawal rate is a safer starting point given lower expected forward-looking returns and higher expected inflation. It attributed this adjustment to higher equity valuations and lower fixed-income yields.

Argument for a Higher Withdrawal Rate (More Aggressive)

In the opposite camp, critics point to examples of retirees that were left with large account balances late in life, arguing that they could have spent more and withdrawn greater than 4% of their savings. Bengen’s updated research seems to support this idea, given that he has increased the safe withdrawal rate higher than 4%.

In practice, I’ve seen truth in both ways of thinking. For example, a retiree who prioritizes leaving a legacy for their heirs may increase their probability of success by dialing the withdrawal rate back. I’ve also had clients who have a goal of spending all their retirement savings, following the wisdom of the adage, “you can’t take it with you when you go”.

Both reasons are valid and again, depend on each person’s situation.

Does the 4% Rule Still Work for Today’s Retirees?

That brings us back to the main question: does the 4% rule still work as a safe withdrawal rate for a person starting retirement today?

The simple answer is yes, the 4% rule appears to be a sustainable withdrawal rate for many of today’s retirees. Bill Bengen’s updated research supports the original 4% rule and also allows for a greater withdrawal rate in his more recent study. If you have no idea where to start, it can be an appropriate rule of thumb to follow initially. But keep in mind that it’s not a one-size-fits-all solution.

A more nuanced answer includes factors specific to your situation. Your goals, spending needs, other income sources, and more will drive you to a more specific starting withdrawal rate than the blanket 4% rule provides.

Factors That Affect a Sustainable Starting Withdrawal Rate (Checklist)

Here are 8 factors that can help you determine your safe starting withdrawal rate:

• Retirement timeline

  • What age are you retiring?

  • How many years of retirement should your portfolio support?

• Spending needs & lifestyle

  • Essential vs. discretionary expenses

  • Timing of large one-time expenses

• Portfolio size & mix

  • Asset allocation (stock & bond mix)

• Market conditions

  • Inflation expectations

• Tax considerations

  • Order of account withdrawals and tax impact

• Income sources beyond retirement savings

  • Social Security, pensions, annuities

  • Timing when these benefits start

• Legacy goals

  • Do you plan to leave a legacy for your heirs or spend down your assets?

• Flexibility

  • Ability to adjust your spending in future years

The 4% Rule is a useful starting point, but your safe withdrawal rate depends on a host of other factors including your goals, assets, cash flow, and taxes.

Want a personalized retirement income plan? Schedule a consultation with our team.

 

Travis

Investment advisory services offered through Andrews Advisory Associates LLC, a registered investment advisor. This blog is not meant to give investment advice. Before investing in any advisory product please carefully read any disclosure documents, including without limitation, the firm’s Form ADVs. The information herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell or an offer to buy securities, investment products or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. These opinions may not fit your financial status, risk and return profile or preferences. Investment recommendations may change, and readers are urged to check with their investment adviser before making any investment decisions.