The 4% rule has survived three decades, two market crashes, and a pandemic. It hasn’t survived 2026.
William Bengen, the financial planner who created the rule in 1994, just raised his own number to 4.7%. Morningstar’s 2026 research says the safe rate is actually 3.9%. That’s a 20% disagreement between two of the most cited sources in retirement planning — on a question where being wrong by even half a percent can mean running out of money at 82.
The problem isn’t that the 4% rule was bad research. It was great research — for a 50/50 portfolio, a 30-year window, and bond yields that no longer exist. But for anyone planning FIRE, or retiring into a market with elevated valuations and uncertain inflation, blindly following a rule from 1994 is like using a paper map in a city that’s been rebuilt twice.
Below: what actually changed, who’s right (Bengen or Morningstar), three strategies that adapt to reality, and a calculator that stress-tests your specific numbers.
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What the 4% Rule Actually Says (and Doesn’t)
Bengen’s original study was simple. He tested every 30-year retirement window from 1926 onward, assumed a 50/50 stock/bond portfolio, and asked: what’s the highest first-year withdrawal rate that never failed? The answer was 4.15% — rounded down to 4% for simplicity. Schwab’s own analysis confirms this framework while noting the rate depends heavily on time horizon and portfolio mix.
Two things most people get wrong about the 4% rule:
“Withdraw 4% of your portfolio every year”
This would mean your income drops when markets crash — exactly when you can’t afford it.
“Withdraw 4% in year one, then adjust that dollar amount for inflation each year”
Your spending stays constant in real terms regardless of market swings.
On a $1 million portfolio, you’d withdraw $40,000 in year one. If inflation is 3%, you’d withdraw $41,200 in year two — even if your portfolio dropped to $850,000. That’s the feature and the flaw. Steady income, but zero flexibility.
Why the 4% Rule Breaks in 2026
Three forces are working against the original assumptions simultaneously. Any one of them weakens the rule. Together, they potentially break it.
The S&P 500’s Shiller CAPE ratio sits near 40 — a level matched only once before, during the dot-com bubble. Bengen’s own two-factor model shows that high CAPE + moderate inflation produces the lowest safe withdrawal rates. A retiree starting today faces a statistical headwind that didn’t exist in most of Bengen’s historical data.
The 4% rule was tested for 30-year retirements. If you retire at 35, you need 50–60 years. Bengen’s updated data shows 4% has roughly a 90% success rate at 50 years — but 90% means 1-in-10 chance of failure. At a 3.5% rate, the success rate climbs above 95% for 50-year windows. For FIRE, Bengen’s own 50-year SAFEMAX is 4.2%, not 4.7%.
A 30% crash in year 2 of retirement is catastrophically different from a 30% crash in year 22 — even if the average return over 30 years is identical. The 4% rule accounts for this historically, but a rigid withdrawal during an early crash forces you to sell low. This is the single biggest risk the fixed rule can’t handle.
The sequence problem is counterintuitive enough that it’s worth seeing in numbers. Consider two retirees, both starting with $1 million and withdrawing $40,000/year (inflation-adjusted at 3%). Both experience the exact same six annual returns — just in reversed order:
| Year | Retiree A Return | A Balance | Retiree B Return | B Balance |
|---|---|---|---|---|
| Start | — | $1,000,000 | — | $1,000,000 |
| 1 | −25% | $710,000 | +30% | $1,260,000 |
| 2 | −5% | $633,300 | +20% | $1,470,800 |
| 3 | +5% | $622,529 | +15% | $1,648,984 |
| 4 | +15% | $672,199 | +5% | $1,687,724 |
| 5 | +20% | $761,619 | −5% | $1,558,318 |
| 6 | +30% | $943,733 | −25% | $1,122,367 |
Both portfolios experience the identical set of returns (−25%, −5%, +5%, +15%, +20%, +30%) — one in forward order, the other reversed. Same 6.7% average. Withdrawals adjusted for 3% inflation annually.
After 6 years, Retiree A — who experienced losses early — has $178,000 less than Retiree B. Same average return. Same total withdrawal. The difference is entirely about when the losses hit. Early losses force you to sell more shares at depressed prices, leaving fewer shares to benefit from the eventual recovery. At the worst point (Year 3), the gap exceeds $1 million. This is why dynamic strategies (guardrails, bucket) exist: they reduce withdrawals during early downturns, preserving the shares that will compound later.
Bengen vs. Morningstar: Who’s Right?
The disagreement isn’t random. They’re answering different questions with different methods.
| Factor | Bengen (4.7%) | Morningstar (3.9%) |
|---|---|---|
| Method | Historical backtesting (1926–present) | Forward-looking Monte Carlo simulation |
| Portfolio | 55% stocks (diversified), 40% bonds, 5% T-bills | 30–50% stocks, rest in bonds/cash |
| Assumption | Future resembles the past | Future returns may be lower than history |
| Success Rate | 100% (no historical failure at 4.7%) | 90% probability of lasting 30 years |
| Best For | Traditional retirees (30-year window) | Conservative planners, early retirees |
Neither is “wrong.” Bengen says: historically, 4.7% never failed. Morningstar says: given current valuations and expected returns, 3.9% gives you a 90% success rate going forward. If you believe the next 30 years will roughly resemble the last 100, lean toward Bengen. Those who expect elevated valuations to compress future returns should lean toward Morningstar.
For FIRE practitioners with a 40–50 year horizon? Both numbers are probably too aggressive without a dynamic adjustment mechanism.
What the 4% Rule Looks Like in the Real World: 2022–2025
Theory and backtests are one thing. Here’s what actually happened to a $1 million portfolio following the 4% rule through the most recent four years of S&P 500 total returns:
| Year | S&P 500 Return | Withdrawal | End Balance |
|---|---|---|---|
| 2022 | −18.1% | $40,000 | $779,000 |
| 2023 | +26.3% | $41,200 | $943,000 |
| 2024 | +25.0% | $42,440 | $1,136,300 |
| 2025 | +17.9% | $43,710 | $1,295,800 |
S&P 500 total returns from ycharts/S&P Global. Withdrawal starts at 4% ($40K) and grows 3% annually for inflation. Simplified: assumes beginning-of-year withdrawal and year-end growth. Real results vary with timing, allocation, and dividends.
The 2022 crash cut the portfolio by over $220,000 in a single year — exactly the sequence-of-returns risk in action. If 2022’s crash had hit in year 15 instead of year 1, the long-term damage would have been far smaller. But three strong recovery years pulled the balance back above the starting value. This is the pattern Bengen found in his historical data: the 4% rule survives most sequences, but the early-crash sequences are the ones that break it over 40–60 year timelines.
Use the calculator below to test your own numbers — including what happens when a crash hits in year 2 instead of year 4.
4% Rule Stress Test Calculator
Theory is one thing. Your actual portfolio balance at age 78 is another. Plug in your numbers below and watch what happens to your money under different withdrawal rates — including a simulated early crash scenario.
🔥 4% Rule Stress Test
See if your portfolio survives — including an early crash scenario
3 Strategies That Actually Work Better
The biggest flaw in the 4% rule isn’t the percentage — it’s the rigidity. Every modern alternative shares one principle: adjust spending based on what’s actually happening in your portfolio.
Set a base withdrawal rate (say, 4.5%), but create upper and lower guardrails. If your effective withdrawal rate rises above 5.5% (because your portfolio dropped), cut spending by 10%. If it falls below 3.5% (because your portfolio surged), give yourself a 10% raise.
Upside: Morningstar’s retirement income research showed dynamic strategies consistently outperformed the fixed 4% rule, with flexible approaches supporting starting rates near 6%. Downside: Income fluctuates, which makes budgeting harder.
Split your portfolio into three buckets by time horizon. Spend from the cash bucket first, refill it from bonds, and let stocks grow untouched. During a crash, you live off cash and bonds instead of selling equities at a loss.
Upside: Psychological protection — you never sell stocks in a downturn. This strategy gained popularity after 2008–2009. Downside: Requires active management and rebalancing between buckets.
Adjust your withdrawal rate based on market valuations. When the Shiller CAPE is above 30 (expensive), withdraw less (3.0–3.5%). When it’s between 15–20 (cheap), withdraw more (4.5–5.5%). This is essentially what Bengen’s two-factor model suggests, applied as a real-time strategy rather than a starting-point rule.
| Shiller CAPE | Market Signal | Suggested Rate |
|---|---|---|
| Under 15 | Cheap | 5.0–5.5% |
| 15–25 | Fair | 4.0–4.5% |
| Above 30 | Expensive | 3.0–3.5% |
Upside: Backed by Bengen’s and Kitces’ research. Responds to actual market conditions. Downside: Requires monitoring. Psychologically difficult to cut spending when everyone else is bullish.
Taxes: Your Real Withdrawal Rate Is Lower Than You Think
The 4% rule was designed for tax-advantaged accounts. Bengen’s original simulation didn’t account for the fact that withdrawals from a Traditional IRA or 401(k) are taxed as ordinary income. Withdrawing $40,000 from a Traditional IRA at an effective federal tax rate of 15% leaves you with $34,000. Your real spending rate is 3.4%, not 4%.
The gap widens for retirees in higher brackets or states with income tax:
| Account Type | $40K Withdrawal | Tax Owed | After-Tax Spending | Effective Rate |
|---|---|---|---|---|
| Roth IRA/401(k) | $40,000 | $0 | $40,000 | 4.0% |
| Traditional IRA (12% bracket) | $40,000 | ~$4,800 | $35,200 | 3.5% |
| Traditional IRA (22% bracket) | $40,000 | ~$8,800 | $31,200 | 3.1% |
| Taxable brokerage (LTCG) | $40,000 | ~$3,000–6,000* | $34,000–37,000 | 3.4–3.7% |
*Taxable brokerage tax depends on cost basis, holding period, and whether gains are long-term. Assumes 0–15% LTCG rate. State taxes would further reduce all after-tax amounts.
This is why many FIRE planners use Roth conversion ladders: converting Traditional IRA funds to Roth in low-income years (early retirement, before Social Security kicks in), paying a lower tax rate on the conversion, and then withdrawing tax-free later. Spending the first 5–10 years of early retirement drawing from taxable accounts while converting Traditional to Roth keeps your effective withdrawal rate in later decades close to the full 4%.
Social Security Changes the Math Entirely
Most 4% rule discussions treat Social Security as an afterthought, but for the average American retiree, it’s the single largest income source. The average monthly Social Security retirement benefit in January 2026 is $2,071, or about $24,850 per year. The maximum benefit at age 70 is $5,251/month — over $63,000 per year.
When guaranteed income covers a portion of your expenses, the required portfolio withdrawal rate drops dramatically:
Example: Annual expenses = $60,000. Portfolio = $1 million. Without Social Security, you need to withdraw 6% — well into the danger zone.
With Social Security at $2,071/month ($24,850/year), you only need $35,150 from your portfolio. That’s a 3.5% withdrawal rate — back in safe territory.
With a couple both collecting (average couple benefit ~$3,600/month or $43,200/year), you only need $16,800 from the portfolio — a 1.7% withdrawal rate. At that level, your portfolio will almost certainly grow in real terms indefinitely.
The timing matters, too. Retiring at 55 with a FIRE plan means roughly 7–12 years drawing solely from your portfolio before Social Security begins (earliest at 62, full benefit at 67, maximum at 70). Those early years are the most vulnerable to sequence-of-returns risk, because you’re withdrawing at a higher rate with no guaranteed income. Once Social Security kicks in, your portfolio withdrawal rate drops and the survival probability jumps.
Delaying Social Security from 62 to 70 increases your monthly benefit by roughly 77%. For most retirees with a healthy portfolio, delaying makes mathematical sense — you’re effectively buying inflation-adjusted guaranteed income at a rate no commercial annuity can match.
The FIRE-Specific Problem: 50 Years Is Not 30 Years
Anyone planning to retire at 35 or 40 can’t use the 4% rule without modification. Here’s what the data says for extended timelines:
Based on updated Trinity Study data through 2024 and Bengen’s historical simulations. 75% stock / 25% bond allocation. Success = portfolio balance > $0 at end of period.
At 4.5% over 60 years, you have roughly a 28% chance of running out of money. That’s a coin flip you don’t want to take with your financial independence. For FIRE, 3.25–3.5% with a dynamic adjustment mechanism (like guardrails) gives you the best combination of spending power and safety margin.
Or, think of it differently: a 3.5% withdrawal rate means you need 28.6× your annual expenses saved. A 4% rate means 25×. That gap — 3.6 extra years of expenses — is the price of sleeping soundly for five decades.
What Rate Should You Use?
Start at 4.0–4.7% with annual flexibility to cut 10% if markets crash early. Bengen’s updated research supports this range.
Start at 3.25–3.5% with guardrails. Build a FIRE number based on 28–30× annual expenses, not 25×.
Reduce starting rate by 0.5% from your default. A 4% person becomes 3.5%. A 3.5% person becomes 3.0%. Reassess in 5 years.
If guaranteed income covers 50%+ of your expenses, you can afford a higher portfolio withdrawal rate — potentially 5%+ — because you’re only drawing on your portfolio for discretionary spending.
Keep Reading
The withdrawal rate is only half the equation. How you build, allocate, and protect that portfolio matters just as much:
4% Rule — Common Questions
Is the 4% rule dead?
Not dead, but outdated as a one-size-fits-all rule. Bengen himself updated it to 4.7% for 30-year retirements with diversified portfolios. Morningstar’s forward-looking model suggests 3.9% for 2026. The rule is still a useful starting point, but treating it as a rigid law — especially for early retirees — ignores 30 years of research showing dynamic strategies consistently outperform fixed withdrawals.
What is the safe withdrawal rate for FIRE?
For early retirees with 40–60 year time horizons, 3.25–3.5% with dynamic adjustments is a reasonable starting point. Bengen’s data shows the 50-year SAFEMAX is approximately 4.2% historically, but that assumes the future repeats the past. A 3.5% rate with guardrails gives you over 95% success probability while allowing spending increases during good years.
What did Bengen change about the 4% rule in 2025?
In his August 2025 book A Richer Retirement, Bengen raised the SAFEMAX to 4.7% based on adding more asset classes (international, small-cap, mid-cap, micro-cap stocks, and T-bills) to the original 50/50 model. He also introduced a two-factor model using the Shiller CAPE ratio and inflation expectations to personalize the safe rate. In the average historical scenario, the safe rate was actually around 7.1% — the 4.7% is the worst-case floor.
How much do I need to retire using the 4% rule?
Multiply your annual expenses by 25. If you spend $50,000 per year, you need $1.25 million. For a safer 3.5% rate, multiply by 28.6 — that’s $1.43 million. For a more aggressive 4.7% rate (Bengen’s updated number), multiply by 21.3 — that’s $1.065 million. The right multiplier depends on your retirement length, risk tolerance, and whether you have other income sources like Social Security.
Does the 4% rule include taxes?
Bengen’s original study assumed a tax-advantaged account (IRA or 401k), so taxes on withdrawals weren’t factored into the portfolio simulation. Withdrawals from a traditional IRA at a 4% rate might only net 3–3.4% after federal and state taxes. Roth IRA withdrawals are tax-free, making the full 4% available for spending. This is a major reason to consider Roth conversions before retirement.
Should I use the 4% rule or the 4.7% rule?
It depends on your portfolio diversification and time horizon. Bengen’s 4.7% requires a diversified portfolio across seven asset classes — not just large-cap stocks and bonds. If your portfolio is a simple 60/40 or all-stock allocation, 4.0–4.2% is more appropriate. And if you’re retiring for more than 30 years, reduce by 0.3–0.5% from whatever rate you choose. The safest approach: start conservative, then give yourself raises when the portfolio performs well.