The 4% Rule Explained: Is It Still Valid in 2026?

What Is the 4% Rule?

The 4% rule is a retirement planning guideline that suggests withdrawing 4% of your retirement savings in your first year of retirement, then adjusting that amount for inflation each subsequent year. Following this rule, your savings should last at least 30 years.

It's one of the most widely used rules of thumb in retirement planning—but is it still valid today?

The History: Where the 4% Rule Came From

The 4% rule was developed by financial advisor William Bengen in 1994. He analyzed historical stock and bond returns from 1926-1976 and found that a 4% withdrawal rate survived even the worst market conditions, including the Great Depression and 1970s stagflation.

Later, the "Trinity Study" (1998) by professors at Trinity University confirmed these findings, giving the rule academic credibility.

How the 4% Rule Works in Practice

Step 1: Calculate Your First-Year Withdrawal Take 4% of your total retirement savings.

Example: $1,000,000 × 0.04 = $40,000 in year one

Step 2: Adjust for Inflation Each Year Increase your withdrawal by the inflation rate annually.

Example: If inflation is 3%, year two withdrawal = $40,000 × 1.03 = $41,200

Step 3: Continue for 30 Years This pattern should sustain your portfolio through a typical retirement.

The 4% Rule Calculator: Find Your Number

Use our retirement calculator above to see: - How much you need saved for your desired retirement income - What 4% of your projected savings will provide - How different withdrawal rates affect your money's longevity

Quick reference:

Is the 4% Rule Still Valid in 2026?

Arguments That It Still Works

1. **Historical resilience:** The rule has survived every major market crash in the past 100 years
2. **Conservative assumptions:** It assumes a 50/50 stock/bond portfolio; more aggressive portfolios often support higher withdrawal rates
3. **Flexibility:** Most retirees can adjust spending during market downturns

Concerns About the 4% Rule

1. **Lower expected returns:** Today's bond yields and stock valuations may mean lower future returns
2. **Longer retirements:** People are living longer; 30 years may not be enough
3. **Sequence of returns risk:** A market crash early in retirement is especially damaging

What the Experts Say Now

Many financial planners now suggest: - 3.5% for conservative planning - 4% for moderate planning - 4.5% if you're flexible with spending

Alternatives to the 4% Rule

1. The Guardrails Strategy - Start with 4-5% withdrawal - If portfolio drops 20%, reduce withdrawals by 10% - If portfolio grows 20%, increase withdrawals by 10%

2. The Bucket Strategy Divide savings into three buckets: - **Bucket 1 (Years 1-2):** Cash - **Bucket 2 (Years 3-10):** Bonds - **Bucket 3 (Years 11+):** Stocks

Draw from Bucket 1 first, refilling it from Bucket 2 during good years.

3. The Variable Percentage Withdrawal (VPW) Withdrawal percentage increases as you age: - Age 65: 4.5% - Age 75: 5.5% - Age 85: 7.0%

This recognizes that you need less money as you age and have fewer years to fund.

4. The Floor-and-Ceiling Approach Set minimum and maximum annual withdrawals: - **Floor:** Enough to cover essential expenses - **Ceiling:** Maximum for discretionary spending

Adjust between these based on market performance.

Common Mistakes with the 4% Rule

Mistake 1: Not Accounting for Taxes If your money is in a traditional 401(k) or IRA, you'll owe taxes on withdrawals. You may need to withdraw 5% to net 4% after taxes.

Mistake 2: Ignoring Other Income Social Security, pensions, and part-time work reduce how much you need from savings. Adjust your withdrawal rate accordingly.

Mistake 3: Being Too Rigid The 4% rule is a guideline, not a commandment. Reduce spending during market downturns; increase it during good years.

Mistake 4: Starting Too Early The 4% rule assumes a 30-year retirement. If you retire at 50, you may need a lower withdrawal rate (3-3.5%).

4% Rule by Retirement Age

Frequently Asked Questions

What if I need more than 4%? You have options: - Delay retirement to save more - Work part-time in retirement - Relocate to a lower-cost area - Reduce expenses

Does the 4% rule include Social Security? No. Social Security is separate. Calculate what you need from savings AFTER accounting for Social Security.

What's the "success rate" of the 4% rule? Historically, about 95% of 30-year periods would have supported 4% withdrawals. That means a 5% chance of running out of money—which is why some planners recommend 3.5%.

Should I use the 4% rule in a Roth IRA? Yes, but with a bonus: Roth withdrawals are tax-free, so 4% of a Roth = 4% in your pocket. Traditional accounts, you'll pay taxes on withdrawals.

The Bottom Line

The 4% rule remains a useful starting point for retirement planning. It's not perfect, but it provides a reasonable framework for estimating how much you need to save.

For 2026 and beyond, consider: - Using 3.5-4% for planning purposes - Building flexibility into your retirement budget - Having a mix of tax-advantaged accounts - Planning to adjust withdrawals based on market conditions

Use our calculator above to see how the 4% rule applies to your specific situation and experiment with different withdrawal rates.