In 1994, a California financial planner named William Bengen sat down with several decades of historical U.S. market data and tried to answer a simple but important question. If you retired at age 65 with a portfolio of stocks and bonds, what was the largest percentage of your portfolio you could withdraw in the first year — and then adjust upward each year for inflation — that would have allowed your money to last for at least thirty years through every historical period in the data set, including the worst ones?
Bengen tested every starting year from 1926 through the early 1990s, simulated retirement portfolios with different stock-bond allocations, and applied a fixed inflation-adjusted withdrawal pattern. The answer he came to, after running thousands of simulations, was approximately 4 percent. A retiree with 50-75 percent of their portfolio in stocks and the rest in bonds, withdrawing 4 percent in the first year and adjusting that amount upward each year for inflation, would have survived every thirty-year retirement period in U.S. history without running out of money. That finding became the 4% rule, and it has been the foundation of American retirement planning ever since.
What is sometimes lost in the popular version of the rule is that Bengen was being deliberately cautious. He was looking for the safest withdrawal rate that would have worked even in the worst historical retirement periods (which turned out to be retirements that started in the late 1960s and early 1970s, when high inflation and bear markets combined to hammer balanced portfolios). The 4% rate worked even for those worst-case retirees. For the average historical retiree, much higher withdrawal rates would also have worked, often 5%, 6%, or even 7%. The 4% number was the lowest worst-case scenario, not the average expected outcome.
<div style="max-width:640px;margin:2rem auto;background:#FFFFFF;border-radius:12px;box-shadow:0 2px 12px rgba(27,40,56,0.10);overflow:hidden;font-family:system-ui,-apple-system,sans-serif;" role="figure" aria-label="Chart showing portfolio survival rates by withdrawal rate over 30 years"> <div style="background:#1B2838;padding:16px 24px;"> <h3 style="margin:0;font-family:Georgia,serif;color:#FFFFFF;font-size:1.15rem;font-weight:700;">Portfolio Survival Rates by Withdrawal Rate</h3> <p style="margin:4px 0 0;color:#A0B0C0;font-size:0.82rem;">Probability of money lasting 30 years (historical simulations)</p> </div> <div style="padding:24px 24px 12px;"> <!-- 3.0% --> <div style="margin-bottom:14px;"> <div style="display:flex;justify-content:space-between;align-items:baseline;margin-bottom:4px;"> <span style="font-weight:600;font-size:0.95rem;color:#1B2838;">3.0%</span> <span style="font-weight:700;font-size:0.95rem;color:#2E7D32;">100%</span> </div> <div style="background:#E8F5E9;border-radius:6px;height:28px;overflow:hidden;"> <div style="width:100%;height:100%;background:linear-gradient(90deg,#2E7D32,#43A047);border-radius:6px;"></div> </div> </div> <!-- 3.5% --> <div style="margin-bottom:14px;"> <div style="display:flex;justify-content:space-between;align-items:baseline;margin-bottom:4px;"> <span style="font-weight:600;font-size:0.95rem;color:#1B2838;">3.5%</span> <span style="font-weight:700;font-size:0.95rem;color:#2E7D32;">98%</span> </div> <div style="background:#E8F5E9;border-radius:6px;height:28px;overflow:hidden;"> <div style="width:98%;height:100%;background:linear-gradient(90deg,#2E7D32,#43A047);border-radius:6px;"></div> </div> </div> <!-- 4.0% --> <div style="margin-bottom:14px;"> <div style="display:flex;justify-content:space-between;align-items:baseline;margin-bottom:4px;"> <span style="font-weight:600;font-size:0.95rem;color:#1B2838;">4.0%</span> <span style="font-weight:700;font-size:0.95rem;color:#1565C0;">95%</span> </div> <div style="background:#E3F2FD;border-radius:6px;height:28px;overflow:hidden;"> <div style="width:95%;height:100%;background:linear-gradient(90deg,#1565C0,#1E88E5);border-radius:6px;"></div> </div> </div> <!-- 4.5% --> <div style="margin-bottom:14px;"> <div style="display:flex;justify-content:space-between;align-items:baseline;margin-bottom:4px;"> <span style="font-weight:600;font-size:0.95rem;color:#1B2838;">4.5%</span> <span style="font-weight:700;font-size:0.95rem;color:#E65100;">82%</span> </div> <div style="background:#FFF3E0;border-radius:6px;height:28px;overflow:hidden;"> <div style="width:82%;height:100%;background:linear-gradient(90deg,#E65100,#FB8C00);border-radius:6px;"></div> </div> </div> <!-- 5.0% --> <div style="margin-bottom:14px;"> <div style="display:flex;justify-content:space-between;align-items:baseline;margin-bottom:4px;"> <span style="font-weight:600;font-size:0.95rem;color:#1B2838;">5.0%</span> <span style="font-weight:700;font-size:0.95rem;color:#C62828;">65%</span> </div> <div style="background:#FFEBEE;border-radius:6px;height:28px;overflow:hidden;"> <div style="width:65%;height:100%;background:linear-gradient(90deg,#C62828,#E53935);border-radius:6px;"></div> </div> </div> </div> <div style="padding:0 24px 16px;text-align:right;"> <span style="font-size:0.72rem;color:#90A4AE;">Source: Bengen (1994), Trinity Study updates</span> </div> </div>
Several developments since 1994 have raised concerns about whether the 4% rule still provides the same safety margin it did when Bengen first published it.
The first concern is high stock market valuations. By most historical measures, U.S. stock valuations in the 2020s have been near or above the levels seen at previous market peaks. High valuations are associated with lower future returns, which means that retirees starting today may experience worse stock returns than the historical averages that Bengen used to calculate the 4% rate.
The second concern is bond yields. For most of the period Bengen studied, bond yields were significantly higher than they have been in the 2010s and 2020s. Lower bond yields mean lower future returns from the fixed-income portion of a retirement portfolio, which contributes less growth and less protection against inflation.
The third concern is longevity. Bengen's original study used a 30-year retirement horizon, which was reasonable for someone retiring at 65 in 1994. Today, with average life expectancies several years longer and many retirees living into their 90s, a 35- or 40-year retirement is increasingly common. Longer retirements need more conservative withdrawal rates to remain safe, all else being equal.
Several updated studies in recent years have suggested that the 'safe' withdrawal rate for retirees starting today may be slightly lower than 4%, with some researchers suggesting numbers as low as 3% or 3.3% for very conservative cases. Others, including Bengen himself, have argued the opposite — that a more diversified portfolio (including small-cap value stocks and international exposure) can support withdrawal rates above 4.5% even in modern conditions. The truth probably depends on your specific situation, your portfolio, and how much flexibility you have.
In 2023, William Bengen published an updated version of his original research, this time with a broader portfolio that included small-cap value stocks, international stocks, and a modest allocation to gold or alternative assets in addition to the U.S. large-cap stocks and bonds of the original study. Using this more diversified portfolio, Bengen calculated a new SAFEMAX (the safe maximum withdrawal rate) of approximately 4.7 percent. He has publicly suggested that 4.5 percent is a reasonable starting withdrawal rate for most retirees today using a broadly diversified portfolio.
Bengen has also emphasized that the original 4% rule was always meant to be a starting point, not a rigid prescription. He never intended retirees to follow it mechanically without adjustment for changing conditions. A retiree who starts at 4% and finds, after five years, that their portfolio has grown substantially can reasonably increase their withdrawals. A retiree who starts at 4% and finds that the market has dropped 30 percent in the first two years should reasonably reduce their withdrawals temporarily until conditions improve.
The flexibility is the key. The retirees who got into trouble during the worst historical periods were not the ones who followed the 4% rule — they were the ones who would have followed an unrealistically high rule like 6% or 7% with no flexibility. The 4% rule, applied with reasonable flexibility, has worked even in the worst historical conditions, and there is no specific reason to think it will fail now.
Rather than picking any fixed withdrawal rate and following it mechanically, many modern retirement researchers now recommend a dynamic withdrawal approach: adjust your annual withdrawals based on how your portfolio is actually performing.
The simplest version is sometimes called 'guardrails' or the Guyton-Klinger approach, named after the financial planners who developed and popularized it. The basic idea: start with a target withdrawal rate (say 4.5 percent). If your portfolio drops significantly, reduce your withdrawals by a small amount (say 5-10 percent) temporarily, until conditions improve. If your portfolio grows significantly, increase your withdrawals (say 5-10 percent), but cap the increase to avoid spending too much in good years. The result is a flexible system that responds to actual market conditions rather than ignoring them.
The dynamic approach has been shown in multiple studies to support higher initial withdrawal rates than the rigid 4% rule, often 5% or higher, with similar or better safety margins. The trade-off is that you have to be willing to actually adjust your spending in down years, which is psychologically harder than it sounds. Many retirees find that cutting their travel budget or postponing a major purchase during a market downturn is much harder in practice than the spreadsheet makes it look. But for retirees who can be flexible, the dynamic approach is probably the best withdrawal framework available.
The other dynamic approach worth knowing about is the 'percentage-of-portfolio' method. Instead of withdrawing a fixed inflation-adjusted dollar amount each year, you withdraw a fixed percentage of your current portfolio balance. For example, you might withdraw 5 percent of whatever your portfolio is worth on January 1 of each year. This approach is automatically self-adjusting — you spend more in years when the portfolio has grown, less in years when it has shrunk — and it makes running out of money mathematically impossible. The trade-off is that your income varies year to year, sometimes significantly, which can be uncomfortable for retirees who want predictable spending.
Whatever withdrawal approach you use, there are several real-world factors that the standard rules do not address explicitly and that can make a big difference to how your retirement actually unfolds.
Social Security. The 4% rule assumes you are funding your entire retirement from your portfolio. Most retirees also have Social Security income, which dramatically changes the picture. If your Social Security covers a substantial portion of your essential expenses, you can safely withdraw at higher rates from your portfolio because the consequences of a bad withdrawal year are smaller. The 4% rule was developed in an era when defined-benefit pensions were common and Social Security was a smaller share of retirement income; today, with most retirees relying on Social Security for 30-50 percent of their income, the calculations should reflect that.
Spending flexibility. Some expenses in retirement are essential (housing, food, healthcare, basic insurance), and others are discretionary (travel, dining out, gifts, hobbies). The 4% rule treats them all the same. In practice, many retirees can comfortably trim their discretionary spending by 20-30 percent in bad market years without affecting their quality of life much, which gives them substantial flexibility to weather downturns without ever actually running out of money.
Health and longevity. A 65-year-old with a family history of long lifespan needs to plan for a 35-40 year retirement. A 65-year-old with significant health issues may have a much shorter horizon. The right withdrawal rate depends on your actual life expectancy, not on a generic 30-year assumption. This is one of the things a good fee-only financial planner can help you think through.
Estate goals. If leaving an inheritance is important to you, your withdrawal strategy needs to account for that. Withdrawing at the maximum safe rate is fine if your goal is to spend everything you have during your lifetime. If your goal is to leave a meaningful inheritance to children or grandchildren, you should withdraw at a lower rate to preserve more of the principal.
If you are about to retire and you are trying to figure out how much you can safely spend each year, here is the practical approach that probably makes the most sense.
Step one: maximize your guaranteed income. Delay Social Security to 70 if you can — every year of delay between 67 and 70 increases your benefit by 8 percent, and that increase is inflation-protected for life. If you have a pension, understand the payout options and pick the one that fits your situation. Guaranteed income is much more valuable than portfolio income in retirement because it protects against market risk.
Step two: figure out your essential expenses. Add up housing, food, utilities, healthcare, transportation, insurance, and other things you genuinely need to spend every month. This is your baseline. Make sure your guaranteed income (Social Security plus pension if any) covers most or all of this number. If it does not, consider an annuity for a portion of your savings to fill the gap.
Step three: use the 4-5% rule as a starting point for your discretionary spending. Calculate 4.5% of your portfolio (using Bengen's updated number for a diversified portfolio). This is approximately how much you can spend each year on top of your guaranteed income, using the standard inflation-adjusted withdrawal pattern.
Step four: be flexible. Plan to reduce discretionary spending by 10-20 percent if the market has a bad year, especially in your early retirement years (which are when poor returns can do the most damage to a long retirement). Plan to increase spending modestly if the market has a great run. Treat the 4.5% number as a starting point, not a rigid rule.
Step five: revisit the plan every year. Look at how your portfolio has actually performed, what your real expenses have been, what has changed about your life, and adjust accordingly. The retirees who do best with withdrawal strategies are not the ones who pick a number and follow it for thirty years. They are the ones who pick a starting point and then adjust along the way as they learn how their actual retirement is unfolding.
The 4% rule is not perfect, but it is still a reasonable starting point for most retirees. It is not the dangerous relic some critics claim, and it is not the magic formula others present it as. It is a useful heuristic, developed from solid historical analysis, that has held up reasonably well in practice for thirty years. Used flexibly, with attention to the real-world factors it does not directly address, it can be the foundation of a successful retirement spending plan.
If you can afford to be flexible — willing to adjust spending up or down in response to market conditions — you can probably support a slightly higher rate, in the 4.5% to 5% range. If you need very predictable income and cannot tolerate adjustments, a slightly lower rate (3.5% to 4%) gives you more cushion. The right number for you depends on your specific situation, and a few hundred dollars spent on a fee-only financial planner to model your specific case is one of the best uses of money you can make in early retirement.
The most important thing is to have a plan, follow it with discipline, and adjust it as conditions change. The retirees who run out of money are almost never the ones who used a 4% rule that was too aggressive. They are the ones who had no plan at all, who spent without tracking, who did not adjust when conditions changed, and who reached their late seventies without ever doing the math on what they could actually afford. Whatever number you pick, the act of having a number — and revisiting it regularly — is what gives you the security to enjoy your retirement instead of constantly worrying about it. That is the real value of the 4% rule, and it is worth far more than the precise digit it ends in.
