What Is the 4% Rule and Does It Still Work in 2026?

Where the 4% Rule Actually Comes From

Most people have heard of the 4% rule. Fewer people know it has a specific origin — and that the origin matters for understanding what the rule actually claims.

In 1994 a financial planner named William Bengen published a paper called Determining Withdrawal Rates Using Historical Data. Bengen analyzed US stock and bond market returns going back decades and asked a simple question: what is the highest withdrawal rate a retiree could have sustained in the worst historical periods without running out of money over thirty years?

His answer was 4%.

Not 4% as a guarantee. Not 4% as the optimal number. 4% as the rate that had never failed in the historical data he analyzed — what he called the SAFEMAX.

Four years later in 1998 three finance professors at Trinity University in Texas — Philip Cooley Carl Hubbard and Daniel Walz — published their own analysis under the title Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable. Their work examined different portfolio compositions and withdrawal rates across historical market cycles including the Great Depression and the stagflation of the 1970s.

Their finding broadly supported Bengen: a 4% withdrawal rate on a balanced portfolio of stocks and bonds had historically high success rates over thirty-year periods.

The two pieces of research together became what the personal finance world now calls the 4% rule.

One important thing Bengen himself has noted: the rule was designed for a traditional retirement starting at sixty-five covering thirty years. It was not designed for someone retiring at forty who needs the portfolio to last fifty years.

Source: Bengen 1994 Journal of Financial Planning. Cooley Hubbard Walz 1998 AAII Journal.

The Multiply by 25 Formula — Your Retirement Number

The 4% rule produces a remarkably simple calculation. If you can sustainably withdraw 4% of your portfolio each year then you need 25 times your annual spending saved and invested. Four percent and twenty-five are mathematical inverses.

Here is what that looks like at common spending levels:

These numbers assume your portfolio is the only source of retirement income. Most people will also receive Social Security which changes the math in a significant way.

Example: You expect to spend $60,000 per year in retirement and will receive $18,000 per year in Social Security benefits. Your portfolio only needs to fund the remaining $42,000.

$42,000 × 25 = $1,050,000

Instead of needing $1,500,000 you need $1,050,000 — a $450,000 difference from one input changing.

Your Social Security benefit estimate is available for free at ssa.gov/myaccount and takes about five minutes to check.

Does the 4% Rule Still Work in 2026?

This is the honest answer: it depends on what you are asking it to do.

The original research used US market data from 1926 to 1995. The portfolios that succeeded at 4% over thirty years survived the Great Depression the inflation of the 1970s and multiple severe bear markets. The rule is not fragile — it was specifically designed around worst-case historical scenarios.

The argument for using 4%: The rule held through every period of major market stress in the data. A balanced portfolio of stocks and bonds has recovered from every historical downturn to date. Inflation-adjusted withdrawal means your spending power is maintained not just your dollar amount.

The argument for going lower: Some researchers — most notably Wade Pfau whose work on safe withdrawal rates has been published in the Journal of Financial Planning — now suggest that 3.3% to 3.5% may be more appropriate for current conditions. Two reasons drive this view. First current equity valuations measured by metrics like the Shiller CAPE ratio are elevated relative to historical averages suggesting future returns may be lower. Second longer life expectancies mean a thirty-year retirement is increasingly common but many people — especially those pursuing early retirement — may need the portfolio to last forty or fifty years not thirty.

The practical middle ground: Most financial planners use 4% as a starting target while building in the intention to be flexible. If markets perform poorly early in retirement — what researchers call sequence of returns risk — reducing spending temporarily by even 10% to 15% meaningfully extends portfolio longevity. The 4% rule treated as a rigid unchangeable withdrawal is more fragile than the 4% rule treated as a starting point with room to adjust.

Three Things the 4% Rule Does Not Account For

1. Retirement spending is not flat. The rule assumes constant inflation-adjusted spending from year one through year thirty. Real retirement spending tends to follow a smile curve — higher in the early active years of retirement when travel and experiences dominate lower in the middle years as activity naturally slows and higher again in the later years when healthcare costs escalate. Building spending flexibility into the model and being willing to spend more early and less during down markets makes the 4% rule more durable not less.

2. Social Security timing changes the number more than most people realize. Claiming Social Security at age 62 versus age 70 produces approximately a 77% difference in monthly benefit for someone born after 1960. The higher the Social Security income the smaller the portfolio needs to be. For someone whose Social Security benefit covers $24,000 per year of a $60,000 annual spending target the portfolio only needs to fund $36,000 per year — not $60,000. That changes the retirement number from $1,500,000 to $900,000. This is one of the most overlooked levers in retirement planning.

3. Geographic flexibility changes everything and the rule ignores it. The same $60,000 per year buys a fundamentally different lifestyle depending on where you spend it. A retiree in rural Portugal or Mexico City or Chattanooga Tennessee lives very differently than a retiree in Manhattan or San Francisco on the same annual withdrawal. For people with flexibility on location the effective safe withdrawal rate can increase significantly because the lifestyle can be maintained on less. The rule does not know where you live. You do.