Is the 4% Rule Still a Safe Bet for Retirement in 2025?

For a long time, the 4% rule has been the go-to starting point for retirement planning. The idea is straightforward: withdraw 4% of your portfolio in the first year of retirement, adjust that amount for inflation each year, and your savings should last three decades.

It’s a comforting framework. It gives people a way to turn an abstract retirement balance into something they can actually plan around.

But here in 2025, the economic landscape has changed. Inflation is stickier than expected, market volatility is more frequent, interest rates are behaving differently than in the past, and people are living longer. These shifts have raised a serious question among advisors and retirees alike: does the 4% rule still make sense?

Where the 4% Rule Came From

The 4% rule traces back to 1994, when financial planner Bill Bengen ran the numbers on historical U.S. market returns dating back to 1926. He wanted to find the highest sustainable withdrawal rate that could survive the worst-case economic stretches, such as the Great Depression and the high inflation 1970s.

His conclusion? A retiree with a diversified stock and bond portfolio could safely withdraw 4% in the first year and continue spending that amount, adjusted for inflation, for 30 years without running out of money. That single finding became a foundational principle of modern retirement planning.

For someone with $1 million saved for retirement, that meant withdrawing $40,000 in the first year, providing a clear reference point for annual spending.

Why It Stuck

The appeal of the rule is obvious:

It’s simple. No spreadsheets or complicated models.

It provides clarity. You get a number to work with right away.

It’s based on data, not guesses or wishful thinking.

It adjusts for inflation, helping preserve purchasing power.

It’s proven, at least historically, in the U.S.

But over time, it became more than just a starting point. Many began treating it as a fixed formula. That’s where the problems began.

Where the 4% Rule Falls Apart

The 4% rule still works under some conditions, but it’s far from universal. Here’s where it can let people down:

Not Everyone Has a 30-Year Retirement

The rule assumes a fixed time horizon, typically 30 years. That might work for someone retiring at 65 and passing at 95, but many retirees today are living longer. A couple retiring at 60, for instance, has nearly a 50/50 chance that at least one of them will live past 95. That’s a 35-year horizon, not 30.

It Was Built on U.S. Data

Bengen’s original analysis only looked at U.S. markets. If you’re living in, say, Australia, Canada, or Europe, or even investing globally, the underlying market behavior may differ significantly. A 2017 Morningstar study found that in some countries, even a 3% withdrawal rate wouldn’t hold up over 30 years.

It Ignores Market Conditions When You Retire

The 4% rule assumes that it doesn’t matter when you retire, but in real life, timing is everything. Starting retirement when markets are expensive or at the tail end of a bull run can seriously hurt your chances of making your savings last. If you had retired in 2000, right before the tech bubble burst, you would have faced steep losses almost immediately. Taking withdrawals during those early downturns would have permanently reduced your portfolio's ability to recover. 

This risk is known as sequence-of-returns risk. It means that the order in which your investment returns happen matters just as much as the average return itself. If bad years hit early, while you’re already pulling money out, your savings can shrink much faster than expected. Even if markets bounce back later, the damage is often done. On the other hand, strong returns early on give your portfolio more breathing room and help it grow through retirement. 

The 4% rule doesn’t account for this. It treats every retiree the same, whether they step into a bull market or a bear. That’s a major blind spot.

Spending Doesn’t Stay the Same Every Year

The 4% rule assumes retirees will increase their spending every year with inflation, regardless of market conditions. But in real life, people tend to adjust. They spend less when markets dip, or when they travel less in later years. A more flexible approach often better reflects how people actually live.

What Experts Are Saying Now

A number of researchers have revisited the 4% rule in light of recent economic changes, and many suggest dialing things back:

In 2021, Morningstar conducted an analysis that suggested a more conservative safe withdrawal rate of 3.3% for retirees. This rate was based on a 50% stock/50% bond portfolio over a 30-year time horizon, aiming for a 90% probability of not depleting the portfolio.
Wade Pfau, a respected retirement researcher, found that for a 40-year retirement horizon, a 3.3% withdrawal rate provided a 95% confidence level of portfolio sustainability.
David Blanchett, formerly of Morningstar, supports a "guardrails" strategy, where you start with 4% but pause or reduce withdrawals when markets perform poorly.

Adapting the 4% Rule for a World That Changes

Most financial planners today don’t throw out the 4% rule entirely; they just treat it as a rough guide. The real work begins when you build in the nuance:

1. Guardrails Strategy

This method allows you to adjust withdrawals within a range. If your portfolio performs well, you give yourself a raise. If it drops, you temporarily freeze or lower withdrawals to protect the base.

2. The Buckets Method

Split your retirement funds into short-, medium-, and long-term buckets:

Short-term: 1–3 years of cash or bonds for steady income

Medium-term: conservative assets for the next 3–7 years

Long-term: growth assets for years 8+

This approach helps prevent selling stocks at a loss during market dips.

3. Use Annuities to Cover Essentials

By converting part of your portfolio into a lifetime income annuity, you can cover basic expenses like housing, groceries, and insurance. That gives you more freedom to invest and spend the rest of your savings.

4. Flexible Spending Rules

Rather than automatically increasing spending with inflation, you can base annual adjustments on portfolio performance or spending bands (e.g., a “floor” and a “ceiling” to stay within).

How Flexibility Helps: A Case Study

To show how different strategies can play out, let’s consider Tom and Linda, two retirees who both stepped away from work in 2025 with $1 million in a 60/40 portfolio. They experience the same inflation and market conditions for the next decade. The only difference is how they spend.

Tom follows the classic 4% rule. He withdraws 4% in Year 1 and increases it every year for inflation, no matter what the markets are doing.

Linda is more flexible. She holds spending steady during down years and increases it modestly only in years when markets rise.

Here’s how things unfold:

Key Assumptions

Inflation ranges between 2% and 3%.

Market returns: Year 2: –15%, Year 3: 0%, Year 4: +12%, followed by +6%, +5%, –10%, +7%, +6%, +4%.

10-Year Comparison

Tom – Traditional 4% Rule