Is the 4% Rule Still Safe in 2026?

What the 4% rule actually says

The 4% rule is a way of turning savings into a retirement income. In your first year of retirement you withdraw 4% of your portfolio. After that you withdraw the same amount each year, raised in line with inflation, regardless of what markets do. Take a hypothetical $1,000,000: you would take $40,000 in the first year, and if prices then rose 3%, about $41,200 in the second. Run in reverse, the rule gives a savings target of roughly 25 times the yearly spending your investments need to cover, because 4% is one twenty-fifth. The rule is about spending from savings you already have; it says nothing about how much to save before retirement or which investments to hold, and it assumes the portfolio stays invested throughout rather than moving to cash.

Where the number came from

The rule traces back to a 1994 paper in the Journal of Financial Planning by William Bengen, then a practising financial planner. He tested withdrawal rates against historical US returns going back to 1926, using a portfolio of large US company shares and intermediate-term government bonds. He was looking for the worst case, not the average: the highest starting rate that would have lasted at least 30 years for someone who retired in any year, including just before the Depression or the high-inflation 1970s. The answer was about 4%. A 1998 study by three professors at Trinity University popularised the idea further.

Why Morningstar says 3.9% for 2026

Morningstar approaches the question differently. Instead of replaying history, it projects returns for stocks, bonds and inflation over the next 30 years and asks what starting rate would have a 90% chance of lasting. For retirees starting in 2026 its estimate is 3.9%, up from 3.7% in its previous year’s report, with the highest safe rates coming from portfolios holding roughly 30% to 50% in shares. Its research also finds that retirees willing to cut spending after bad years can start noticeably higher, because flexibility does much of the work that a lower rate would otherwise do.

Why the rule’s creator now says 4.7%

Bengen has revised his own number upwards. In his 2025 book, A Richer Retirement, he argues for a worst-case rate of about 4.7% over 30 years. The main reason is diversification: his newer research uses a broader portfolio including large, mid-sized, small and international shares as well as bonds and cash, which historically held up better than the two-asset mix in his 1994 study. On a hypothetical $1,000,000, that is the difference between $40,000 and $47,000 in the first year. It remains a worst-case figure based on history, not a forecast, and it still assumes withdrawals rise with inflation every year.

• Asset mix: broader diversification has historically supported higher safe rates; a very cautious portfolio can lower them.
• Time horizon: a retirement that may last 35 or 40 years needs a lower starting rate than 30 years.
• Flexibility: trimming withdrawals after poor years allows a higher starting point.
• Fees: a 1% annual fee comes straight out of the budget a withdrawal rate assumes.
• Other income: a pension or Social Security reduces what the portfolio itself must provide.

The risk no average can remove

Every version of the rule is vulnerable to sequence of returns risk. When money is flowing out of a portfolio, a crash in the first years of retirement does far more damage than the same crash twenty years later, because withdrawals taken from a fallen portfolio sell more units at low prices, and those units are never there for the recovery. Two retirees can earn the same average return and end up in very different places simply because one met the bad years first. That is why historical worst cases, not averages, sit at the heart of the rule. It is also why many planners suggest keeping a year or two of spending in cash or short-term bonds near the start of retirement, so that withdrawals in a bad year do not have to come from shares that have just fallen.

How to use the rule sensibly

Treat the 4% rule as a planning anchor. Multiply the yearly spending your investments must cover by 25 for a first target, then test a range: something closer to 3.5% if you want extra caution or expect a long retirement, and closer to 4.7% if you hold a broadly diversified portfolio and could cut spending in a bad year. A worked, hypothetical example: if you want $50,000 a year and expect $20,000 from Social Security or a pension, your portfolio must cover $30,000. At 4% that points to $750,000; at 3.9% to about $770,000; at 4.7% to about $640,000. Revisit the numbers every year rather than setting them once. This article is general education, not personal financial advice; a licensed financial planner can model your own situation, including taxes and other income.

This article is educational and general in nature. It isn’t personalized investment, tax, or legal advice — always weigh your own circumstances, or talk to a licensed professional, before making financial decisions.

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