The 4% Rule for Retirement Withdrawals Gets a Closer Look
The 4% rule for retirement spending was created 30 years ago. Things have changed since then.


When financial adviser William Bengen invented the 4% rule for retirement planning, the TV show “Friends” had just debuted. The rule provides a general guideline for how much to withdraw in retirement safely so you don't outlive your money. But that was in 1994, and it’s fair to ask whether his formula still holds up.
Here's how the 4% rule works. Let’s say you start with a $2.5 million portfolio. In your first year of retirement, you can withdraw 4% of your total balance or $100,000. That sets your baseline. The withdrawal amount increases with the inflation rate each year thereafter. If inflation is 2% in year two, you withdraw $102,000.
In theory, this formula means that “under a worst-case investment scenario, your savings should still last 30 years,” says Karen Birr, manager of retirement consulting at Thrivent in Minneapolis. In practice, however, the formula may require adjusting because Bengen made several assumptions when he devised the rule that don’t always apply today.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The 4% rule and markets
First, he assumed that a retirement portfolio would be split approximately 50/50 between stocks and bonds, basing returns on historical market data from 1926 to 1976. “There are some issues with using historic returns,” says Dan Keady, a certified financial planner and senior director of financial planning at TIAA in Charlotte, N.C. For one thing, bond interest rates were higher then, whereas Keady says retirees today could need a higher stock allocation — up to 75% — to generate enough income.
Investing more in stocks in a bear market when the bottom seems nowhere in sight can be tough for retirees to stomach, so another option is to lower the 4% baseline withdrawal rate to “a little over 3%, maybe 3.3%,” says Keady. This means you will need to either accept less income or have more saved for retirement. To generate the same amount of income at 3%, your portfolio must be 33% larger.
Longevity
Bengen also assumed that retirement savings should last 30 years to account for longevity risk. Over time, however, life expectancies have risen, and today, savings may need to last 35, even 40 years. This, too, might imply lowering the 4% rate, except some financial advisers say that risks too much austerity, especially if markets bounce back. “We commonly see people are so cautious with their spending, they end up with more money three to five years after retiring,” says Sri Reddy, senior vice president for retirement and income at Principal Financial Group in Des Moines, Iowa.
In fact, Bengen himself suggested raising the target rate to 4.5% or even 5% when he saw that many retirees were dying before spending down their savings.
“Having a surplus at the end of life is not a bad thing,” says Birr. “Just make sure it’s something you want.”
If you’re worried about outliving your savings, Keady suggests transferring part of your portfolio to an annuity for guaranteed lifelong income. An annuity combined with Social Security should deliver enough income to cover essential needs, with the 4% rule applying to your investment portfolio for discretionary spending, like vacations and hobbies. In a bad investing year, discretionary spending can be reduced without affecting the essentials.
Inflation. When Bengen created the 4% rule, inflation averaged a modest 2% to 3% and while it was recently at 2.7% as of November, it did hit a more than 40-year high of 9.1% in June 2022. In a high inflationary environment, withdrawing more at the start of retirement to keep pace, particularly when the market is down, can throw retirement planning off track.
Let’s say we have two years of 7% inflation, Keady says. Someone who started withdrawing $100,000 a year would be taking out $114,490 in year three. That’s hard to sustain as you’ll keep building off those higher-than-expected withdrawal rates.
One solution is to review your portfolio performance and inflation each year, adjusting the withdrawal rate to match your target. If inflation pushes up the baseline withdrawal rate to 6% a year, scale it back.
If a bull market sends your portfolio balance soaring, you may be able to take out less than 3% or 4% with no change in lifestyle. Once you turn 72, required minimum distributions (RMDs) may force you to withdraw more than you prefer. “The first-year RMD percentage starts at 3.65% and increases as you get older,” says Birr.
Early retirement
If you are among the many people interested in retiring early or the FIRE movement (which stands for financial independence, retire early), the 4% rule may be too aggressive for your needs. Since your retirement will be much longer than average, you must plan early retirement withdrawal strategies for the long haul. And before you leap, consider that a sabbatical may be a smarter move than early retirement.
Spending
Adjusting the withdrawal rate annually also addresses another Bengen assumption: that retirement spending rises linearly when, in fact, it fluctuates.
Retirees tend to spend more early on. “As they get older, spending usually slows down, before possibly picking up again for late-life health care costs,” Reddy says. He prefers that clients spend more in the beginning and adjust their budget later if it appears they might run short. Remember, the 4% rule is only an estimate because everyone’s situation is different, Birr says. “Life events will happen, and you need to be flexible.”
Related Content
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

David is a financial freelance writer based out of Delaware. He specializes in making investing, insurance and retirement planning understandable. He has been published in Kiplinger, Forbes and U.S. News, and also writes for clients like American Express, LendingTree and Prudential. He is currently Treasurer for the Financial Writers Society.
Before becoming a writer, David was an insurance salesman and registered representative for New York Life. During that time, he passed both the Series 6 and CFP exams. David graduated from McGill University with degrees in Economics and Finance where he was also captain of the varsity tennis team.
- Donna FuscaldoRetirement Writer, Kiplinger.com
- Ellen B. KennedyRetirement Editor, Kiplinger.com
-
Could This Little Known Data Shift Hurt Your 2026 Social Security COLA?
The BLS has changed how it measures the inflationary data that determines whether Social Security benefits will get a Cost-of-Living Adjustment (COLA). Will it hurt your benefits?
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 Years
Building wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 Years
Building wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
Five Mistakes to Avoid in Your First Year of Retirement
Retirement brings the freedom to choose how to spend your money and time. But choices made in the initial rush of excitement could create problems in future.
-
I'm an Investing Expert: This Is How You Can Invest Like Warren Buffett
Buffett just invested $15 billion in oil and gas, and you can leverage the same strategy in your IRA to potentially generate 8% to 12% quarterly cash flow while taking advantage of tax benefits that are unavailable in any other investment class.
-
How Much Income Can You Get From an Annuity? An Annuities Expert Gets Specific
Here's a detailed look at income annuities and the factors that determine your payout now and in the future.
-
Your Paycheck Stops in Retirement, But Your Life Doesn't: An Expert Guide to Planning for a Confident Future
Social Security will replace only about 40% of your salary, on average. A solid financial plan will help you plug the gap so you can rest easy in retirement.
-
Are You Jeopardizing Your Future to Help Your Adult Kids? An Expert Guide for How to Not Do That
If your adult child needs financial help, of course you want to provide it, but crafting a plan that also protects your financial and emotional well-being is vital.
-
I'm a Financial Planner: Here Are Some Long-Term Care Insurance Tips for Every Age
Strategies include adding riders to life insurance for younger individuals and considering hybrid or traditional long-term care policies for those in their mid-50s and 60s.
-
Engineering Reliable Retirement Income in 2025: An Expert Guide
For dependable income, consider using a bucket strategy and annuities in tandem to promote structure, flexibility and peace of mind.