Imagine spending thirty years doing everything right. You maxed out your contributions, kept your costs low, rebalanced your portfolio religiously, and built your entire retirement plan around a single, reassuring number: four percent. It was supposed to be the answer. The golden rule. The safe harbor that every financial planner, every personal finance book, and every FIRE forum pointed to as proof that early retirement was achievable.
Then life happened. Markets moved. Healthcare got expensive. Lifespans got longer. And the rule that was born in 1994 started showing its age in ways the spreadsheets never warned you about. This is not just a cautionary tale. It’s a pattern playing out across millions of American households in 2025 and 2026, and the numbers behind it are genuinely unsettling.
Here Are the 10 Key Reasons the 4% Rule Is Breaking Down for Modern Retirees
The 4% rule has guided retirement planning for over three decades. But in 2026, the world it was designed for looks very different. Markets are more volatile, lifespans are longer, healthcare is more expensive, and the economic assumptions baked into the original research are quietly crumbling.
Whether you are already retired or still planning, these ten points reveal why sticking rigidly to a single percentage may leave you working longer than you ever expected.
1. The Rule Was Designed for a World That No Longer Exists
The 4% rule was born from thorough academic research in the mid-1990s by financial planner William Bengen, whose landmark study published in 1994 in the Journal of Financial Planning examined historical market data from 1926 to 1995. Bengen used a 60/40 portfolio model and conducted his research during a period of higher bond returns compared with current rates.
Critics argue the rule is outdated because of how much times have changed since the 1990s when it was first popularized. Back then, the 10-year bond yield was over 5%, so it made sense that withdrawing at a 4% rate would not exhaust savings with a 5% risk-free return available. Today, with financial giants like J.P. Morgan, Vanguard, and Goldman Sachs lowering their stock and bond return forecasts, maintaining a 4% withdrawal rate feels increasingly unrealistic.
Since its creation more than three decades ago, the 4% rule has been cited as a simple guide for retirement withdrawals, with the approach involving pulling 4% of your retirement savings in your first year of retirement, then continuing each subsequent year while adjusting for inflation. Treating a 1994 research paper as a timeless law is a bit like navigating a new city with a thirty-year-old paper map. The roads have changed.
2. Morningstar Quietly Lowered the Safe Rate – and Most People Missed It
Morningstar research showed that the safe withdrawal rate declined to 3.7% in 2025, from 4% in 2024, due to long-term assumptions in financial markets. Specifically, expectations for stock, bond, and cash returns over the next 30 years declined relative to the prior year. That is not a minor revision. For someone with a one million dollar portfolio, this means withdrawing thirty-seven thousand dollars per year instead of forty thousand, a real difference in lifestyle.
Morningstar’s own inaugural research in 2021 concluded that 3.3% was a more realistic estimate of a safe starting withdrawal rate, and that number has fluctuated ever since. In 2022, they estimated 3.8%, in 2023 they moved to 4.0% as inflation moderated, and by 2024 they revised it down again to 3.7% due to higher equity valuations and slightly lower bond yields. Honestly, if the goalposts keep shifting, how confident can anyone really be in a fixed rule?
3. Longer Retirements Expose a Critical Flaw in the Original Math
The 4% rule assumed a 30-year retirement, meaning retiring at 65 and living to 95. But modern reality often means retiring at 60 or earlier and potentially living to 95 or beyond, creating retirements of 35 to 40 years. That extra decade of withdrawals represents roughly a quarter more in total withdrawals, and the 4% rule’s success rate drops significantly over 40 years.
If you increase the simulation time beyond 30 years, a 4% withdrawal rate is no longer considered safe. With 50 years of retirement, you have at most roughly a nine-in-ten chance of success with a 4% withdrawal rate. For retirements lasting 50 or more years, the 4% rule shows success rates well below the ideal threshold. Most researchers now recommend withdrawing between 3% and 3.5% for early retirement. That is a big gap between what people planned and what the math actually demands.
4. Sequence-of-Returns Risk Can Destroy a Portfolio in the First Decade
Experiencing a market drop in the early years of retirement can create problems that go beyond the immediate hit to your portfolio, potentially to the point where it may not last as long as you need. At issue is a phenomenon known as sequence-of-returns risk, where the order and timing of poor investment returns can have a big impact on how long your retirement savings last.
The true driver of sequence of return risk and safe withdrawal rates are the returns earned over the first decade of retirement. Long-term returns over 30 years do not matter if returns are so bad in the first decade that the retiree runs out of money before the good returns at the end show up. Bad returns in the first five to ten years can be simply unrecoverable. Think of it like launching a rocket with a broken first stage. Even if the upper stages are perfect, you never get off the ground.
5. Inflation Is Far More Dangerous Than Most Retirees Realize
The original 4% rule assumed steady inflation of around 3%, but recent reality has been far more volatile: inflation ran at 7.0% in 2021, 6.5% in 2022, 3.4% in 2023, and 2.9% in 2024. These wild swings make fixed inflation adjustments genuinely dangerous. When you are retired and withdrawing a fixed inflation-adjusted amount, a surprise spike in prices hits you twice: once in your spending and once in your portfolio’s real returns.
The big problem for the worst historical retirement scenario was not bad investment returns. The problem was the real return, meaning the inflation-adjusted return. The portfolio was dropping rapidly in inflation-adjusted value and simultaneously the retiree was withdrawing significantly more from it every year. That combination is a recipe for portfolio disaster. A Social Security cost-of-living adjustment of 2.16% sounds adequate, until you remember that healthcare is currently rising at 7.7%. The math simply does not work.
6. Healthcare Costs Are a Budget-Wrecking Wildcard the Rule Ignores
According to the 2025 Fidelity Retiree Health Care Cost Estimate, a 65-year-old individual may need $172,500 in after-tax savings to cover healthcare expenses in retirement, an amount up nearly 4% from 2024. The 4% rule overlooks healthcare costs, and Medicare gaps can reach $300,000 per couple. These are not edge cases. These are the expected costs for average healthy retirees.
While general inflation typically runs around 3% annually, healthcare costs consistently rise between 5% and 6% each year. This means healthcare inflation outpaces general inflation by one and a half to two times, creating a compounding effect that can devastate unprepared retirees’ budgets. Research reveals that nearly two-thirds of pre-retired investors surveyed are underestimating their expected healthcare expenses in retirement, and only about one in four investors believe they will require long-term care, yet roughly seven in ten individuals turning 65 are likely to need this type of care.
7. The Rule Simply Does Not Account for Taxes or Fees
According to a 2024 Charles Schwab article, there are significant downsides to the framework of the 4% rule. For example, it does not include taxes or investment fees, and it applies to a very specific investment portfolio – a 50-50 stock-bond mix that does not change over time. Real-world portfolios look nothing like that static model.
In short, the 4% rule is a research simplification. It does not take into account variations in cash flow, including whether Social Security has kicked in for a retiree yet, or taxes, which do not grow with inflation. Let’s be real: taxes in retirement can be shockingly complex. Required minimum distributions, Social Security taxation thresholds, capital gains rates – none of these were baked into Bengen’s original work.
While the 4% rule is a reasonable place to start, it does not fit every investor’s situation. It is a rigid rule that assumes you increase your spending every year by the rate of inflation, not based on how your portfolio actually performed. It also assumes you never have years where you spend more or less than the inflation increase.
8. High Market Valuations Are Suppressing Future Expected Returns
As of early 2025, the S&P 500 CAPE ratio sat around 31 to 32, well above its historical average of 17. Starting retirement at today’s valuations has historically correlated with lower safe withdrawal rates. The mechanism is straightforward: high valuations often mean lower forward returns. If stocks return 5% to 6% instead of the historical 10%, a 4% withdrawal combined with inflation quickly depletes portfolios.
That kind of drop in returns is catastrophic for 4% withdrawals. If the markets are unfavorable, particularly during a prolonged bear market of two, three, or four years, and that pool of capital is shrinking while you pull out money each year from a declining base, investors can reach a point where the portfolio gets so small that it truly cannot come back because you need to keep spending from it. It is a trap that looks invisible until you are already inside it.
9. The Rule Treats Retirement as a 30-Year Formula, Not a Living Reality
There is over 30 years of research exploring how much a retiree can withdraw annually from a portfolio, with estimates generally ranging from 2% to 8%, yet the industry has largely coalesced around 4%. However, this rule and many modeling tools use assumptions that do not accurately capture retiree preferences and decisions.
Three common gaps in traditional models include ignoring other income streams: many Americans receive guaranteed lifetime pension benefits such as Social Security, which provides a minimum standard of living and means a retiree’s portfolio is generating income in addition to guaranteed sources. Traditional models also commonly do not include the desire or ability to adjust spending during retirement, since withdrawals are assumed to change only by the rate of inflation. Research strongly suggests that retirees should take a personalized approach to withdrawals, factoring in both the portfolio value and individual needs, while steering clear of rigidly sticking to a 4% withdrawal rate based on the initial retirement wealth.
10. Americans Are Running Out of Money in Real Time – and Going Back to Work
A generation of Americans retired into an environment where their savings assumptions were built on lower healthcare costs, lower inflation, and higher bond yields than they are actually experiencing. The personal savings rate dropped from 6.2% in the first quarter of 2024 to just 3.6% by the fourth quarter of 2025, a decline of more than 40% in under two years. That is not just a statistic. That is households burning through their cushion faster than they anticipated.
For millions of older Americans navigating 7.7% healthcare inflation, a 3.6% national savings rate, and consumer confidence near recessionary lows, retirement is increasingly becoming a temporary state rather than a permanent one. The number of retirees heading back to the workforce is not a quirky trend or a matter of staying busy. It is a financial survival story playing out in real time, driven by stubborn inflation, rising essential costs, and retirement savings that were never enough to begin with.
The 2024 Northwestern Mutual Planning and Progress Study found that roughly seven in ten Americans use some financial rule of thumb for planning, with retirement withdrawal strategies like the 4% rule among the top-cited. Most people built their entire retirement identity around a number they never questioned. That is a deeply human thing to do. It is also, unfortunately, a risky one.
The Bottom Line: A Rule of Thumb Is Not a Retirement Plan
Here’s the thing: the 4% rule was never meant to be followed like scripture. In short, the 4% rule is a research simplification. It was a brilliant starting point, a rough benchmark built on historical U.S. market data from a specific era. The problem is that millions of people turned a simplification into a strategy and built their entire financial future on it without stress-testing the assumptions underneath.
Conservative investors might consider a withdrawal rate of 3% to 3.5%, while moderate approaches involve 3.5% to 4% with adjustments. Better than any fixed rule are dynamic strategies that adapt to markets, life, and real circumstances. Retirement is not a formula. It is a dynamic strategy that adapts over time.
It’s hard to say for sure what the right number is for any individual retiree. But what the data from 2024 through 2026 makes crystal clear is that a single static percentage, applied blindly, is not enough. The world is more complicated than a four-percent rule. Your retirement plan should be too. What would you do differently if you could start over? Tell us in the comments.