How Much Can You Actually Spend in Retirement? The 4% Rule, Explained

How much can you spend in retirement without running out of money? The answer most people have heard is the 4% rule: withdraw 4% of your savings in the first year, give yourself a raise for inflation every year after that, and the money is supposed to last. The planner who came up with that number in 1994 now thinks it is too conservative, while a respected research firm says it might be too aggressive.

This article covers where the 4% rule came from, how to think about a safe withdrawal rate for your own situation, and when the rule struggles. It is educational and is not personal financial advice.

What is the 4% rule?

In 1994, a financial planner named William Bengen published a study asking how much a retiree could withdraw each year without running out of money over a 30 year retirement. He tested real market history back to 1926, assuming a portfolio of roughly 60% stocks and 40% bonds rebalanced once a year, across every 30 year window he could find.

The worst starting withdrawal rate that survived every one of those windows was about 4.15%. In print it got rounded down to 4%. A few years later, three professors at Trinity University ran a similar study and landed in the same neighborhood.

How the 4% rule works in practice

Say you retire with $2.5 million. In your first year, 4% is $100,000. If inflation runs 3%, the next year you give that $100,000 a 3% raise, so about $103,000.

The rule was meant as a worst case floor and was never a promise. It assumes you spend the same inflation adjusted amount every year no matter what the market does, and it was built for a retirement of about 30 years.

How to find your safe withdrawal rate

The 4% figure is an average answer to a personal question. Three things move the number most:

• Time horizon. If you retire at 50, your money might need to last 40 or even 50 years, and a longer retirement means a lower safe rate.
• Asset allocation. The rule assumed roughly 60% stocks. If you go too conservative, your safe rate can actually go down because you lose growth.
• Flexibility. If you are willing to adjust your spending even a little in bad years, you can often start with a meaningfully higher number.

Is the 4% rule still valid?

The experts disagree. By adding more types of investments, Bengen’s newer research pushed the safe starting rate up to about 4.7%. In his 2025 book he argues that 4.7% is the worst case and that for many retirees today he would be comfortable with something closer to 5.25% to 5.5%.

Morningstar runs this analysis every year, and for 2026 their base case for a new retiree who wants steady, inflation adjusted income over 30 years is 3.9%. It is lower because they look forward at current stock prices and bond yields as well as backward at history, and they aim for a 90% success rate.

The two are answering slightly different questions. My takeaway is that there is a sensible range, and where you land depends on your time horizon, portfolio, and flexibility.

Sequence of returns risk and when the 4% rule struggles

The biggest threat to any withdrawal rule is sequence of returns risk. Imagine two people who retire with $2.5 million and earn the same average return. One hits a market crash in the first few years, and the other gets those same bad years at the end. The first person is selling investments while the market is down, which locks in losses and leaves less money to recover. This is why the first 5 years of retirement are often the riskiest moment in your financial life.

The rule tends to work well when you retire around the traditional age, hold a healthy slice of stocks, and inflation behaves. It struggles when you retire early, when you retire into a crash or a stretch of high inflation, and when you refuse to adjust your spending.

The guardrails approach to retirement withdrawals

The most popular way to make the rule dynamic is a guardrails approach. You set a target withdrawal rate with an upper and a lower boundary around it. If a bad market pushes your withdrawal rate too high, you trim spending, often by around 10% and usually temporarily. If markets do well and your rate drifts below the lower rail, you give yourself a raise.

The research behind this, originally from Jonathan Guyton and William Klinger, found that being willing to make those small adjustments often lets you start with a higher withdrawal rate, in the low to mid 5% range, while still keeping a high probability of success.

Common questions

Does the 4% rule still work in 2026?

As a rough starting point it still holds up, but it was a worst case floor from 1994 and not a personalized plan. The credible range today runs from under 4% to over 5%.

How much can I withdraw each year from $2.5 million?

Under the 4% rule, you would take $100,000 in the first year and then adjust that amount for inflation each year.

What is a safe withdrawal rate for early retirement?

The rule was built for about 30 years, and a longer retirement means a lower safe rate.

VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

If you have spent any time thinking about retirement, you have probably heard one number thrown around more than any other. Four percent. The idea is simple. Save up a nest egg, withdraw four percent of it in your first year, give yourself a raise for inflation every year after that, and you will supposedly never run out of money. It is clean, it is quotable, and it is everywhere.

But here is the problem. That number was calculated back in 1994, and the man who came up with it now says it is wrong. Not a little wrong. He thinks it is too conservative. Meanwhile, one of the most respected research firms in the country says it might be too aggressive. So who is right? And more importantly, what does that mean for you and your money? Let us break it down.

Overview and about me

Here is exactly what we are going to cover. First, what the four percent rule actually is and where it came from, because the origin story matters more than you would think. Second, how you actually figure out a safe withdrawal rate for your situation, not just a rule of thumb. And third, the part most people skip. When this rule works beautifully, and when it can quietly fall apart.

Stick with me, because by the end you will understand this topic better than almost anyone repeating it online.

Quick note on who I am. I am Andy VandenBerg, a CFA and the founder of VDB Wealth, where I help families and business owners build and protect wealth that lasts. Turning a lifetime of savings into income you will not outlive is one of the most important problems I work on, and it is exactly what this video is about. One quick disclaimer. This is educational, not personal financial advice. Let us get into it.

What the 4% rule actually is

So where did four percent come from? Back in 1994, a financial planner named William Bengen published a study in the Journal of Financial Planning. He asked a deceptively simple question. If someone retires and starts pulling money out of their portfolio, how much can they take each year without running out of money over a thirty year retirement?

To answer it, he did not guess. He ran the numbers against real market history going all the way back to 1926. He assumed a portfolio of roughly sixty percent stocks and forty percent bonds, rebalanced once a year. And he tested every thirty year retirement window he could find, including the unlucky people who retired right before the Great Depression, or right before the brutal markets of the 1970s.

Here is what he found. The worst starting withdrawal rate that still survived every single one of those windows was about four point one five percent. He called it the SAFEMAX. In print it got rounded down, and the four percent rule was born.

Let me make that concrete. Say you retire with two and a half million dollars. Four percent of that is one hundred thousand dollars in your first year. The next year, if inflation ran three percent, you do not take four percent again. You give that hundred thousand a three percent raise, so about one hundred and three thousand dollars. And so on. The percentage sets your starting income. Inflation drives it from there.

A few years later, three professors at Trinity University ran a similar study using slightly different methods, and they landed in the same neighborhood. That is the research a lot of people now call the Trinity Study, and it is a big reason the four percent number stuck so hard. Two independent pieces of research, same ballpark answer.

Now notice what the rule was never meant to be. It was never a promise. It was a worst case, survive the Great Depression floor. It assumes you spend exactly the same amount, adjusted for inflation, every single year, no matter what the market does. And it was built for a retirement of about thirty years. Hold onto those three things, because every one of them matters for whether the rule actually fits you.

How to determine your safe withdrawal rate

Which brings us to the real question. How do you figure out a safe withdrawal rate for your situation? Because four percent is an average answer to a question that is deeply personal.

Three things move the number more than anything else.

The first is your time horizon. Bengen built the rule for thirty years. If you retire at sixty five, that is reasonable. But if you retire at fifty, your money might need to last forty or even fifty years, and a longer retirement means a lower safe rate. Retire later, and you may be able to take more.

The second is your asset allocation, meaning the mix of stocks and bonds you hold. The rule assumed roughly sixty percent stocks. Go too conservative, say all bonds and cash, and ironically your safe rate can actually go down, not up, because you lose the growth you need to outrun inflation over a long retirement.

The third is flexibility, and this is the big one. The four percent rule assumes you spend the same amount whether the market is up thirty percent or down thirty percent. Real people do not behave that way. If you are willing to adjust your spending even a little in the bad years, you can often start with a meaningfully higher number.

Now here is where it gets interesting, because the experts genuinely disagree, and I want to be fair to both sides.

Bengen himself has updated his work. By adding more types of investments, like international stocks and smaller company stocks, his newer research pushed the safe starting rate up to about four point seven percent. In his 2025 book he argues that four point seven is actually the worst case, and that for many of today’s retirees he would be comfortable with something closer to five and a quarter to five and a half percent.

On the other side, Morningstar, a highly respected research firm, runs this same analysis every year. For 2026, their base case for a brand new retiree who wants steady income adjusted for inflation over thirty years is three point nine percent. That is below the classic four. Why lower than Bengen? Because they are looking forward at today’s stock prices and bond yields, not just backward at history, and they are aiming for a ninety percent success rate.

So look at that range. One credible source says start under four percent. Another says you can comfortably go over five. They are not really contradicting each other. They are answering slightly different questions, with different assumptions about the future and a different willingness to adjust along the way. The honest takeaway is that there is no single magic number. There is a sensible range, and where you land inside it depends on your time horizon, your portfolio, and your flexibility.

When it works and when it does not

Okay, so when does this actually work, and when does it fall apart? This is the part I really want you to remember.

The single biggest threat to any withdrawal rule has a name. Sequence of returns risk. Let me show you why it is so sneaky.

Imagine two people who both retire with two and a half million dollars. Both earn the exact same average return over their retirement. The only difference is the order those returns show up in. Person A hits a nasty market crash in their first few years. Person B gets those same bad years, but at the very end instead of the beginning.

Same average return. Wildly different outcomes. Why? Because Person A is selling investments to fund their lifestyle while the market is down, locking in those losses, and there is less money left to recover when the market finally bounces back. Person B got to enjoy strong early years, so their portfolio was bigger and far more durable by the time the bad years arrived.

This is why the riskiest moment in your entire financial life is often the first five years of retirement. A bad market early, combined with steady withdrawals, can do damage you never fully recover from.

So when does the four percent rule work well? When you retire around the traditional age with roughly a thirty year horizon. When you hold a healthy slice of stocks. When inflation behaves. And, honestly, when you get a little lucky with timing. In a lot of historical periods, people who followed the rule did not just survive. They died with more money than they started with. That is the part critics forget. The rule was conservative by design.

When does it struggle? When you retire early and need the money to last forty years or more. When you retire into a bad sequence, a crash or a stretch of high inflation in those first few years. And when you treat it as rigid, refusing to adjust your spending no matter what is happening around you. Inflation is especially brutal here, because the rule bakes in automatic raises whether your portfolio can afford them or not. Bengen himself has called inflation the retiree’s greatest enemy.

So the rule is not dead, and it is not gospel. It is a useful starting point that needs a thoughtful human attached to it.

A better approach: make it dynamic

So what do thoughtful retirees actually do? They make the rule dynamic instead of rigid.

The most popular version is called a guardrails approach. Picture the guardrails on a highway. You set a target withdrawal rate, then you set an upper and a lower boundary around it. As long as your spending stays between the rails, you do not change anything. But if a bad market pushes your withdrawal rate too high, you trim your spending, often by around ten percent, and usually just temporarily. And here is the part people miss. If markets do well and your rate drifts below the lower rail, you actually give yourself a raise.

The research behind this, originally from Jonathan Guyton and William Klinger, found that because you are willing to make those small adjustments, you can often start with a higher withdrawal rate, in the low to mid five percent range, and still keep a high probability of success. You are trading a little predictability for a lot more income and a lot more durability.

The point is not which exact system you use. The point is that a smart plan responds to reality. The four percent rule is a great seatbelt. Guardrails are more like adaptive cruise control.

Recap and call to action

So let us bring it home. The four percent rule was a genuinely brilliant piece of research, and as a rough starting point it still holds up. But it was a worst case floor from 1994, not a personalized plan. A safe withdrawal rate for you depends on how long your money needs to last, how it is invested, and how flexible you are willing to be. The credible range today runs from under four percent to over five, and the right answer lives somewhere inside that range, tailored to your life.

If you take just one thing away, let it be this. Do not anchor your retirement to a single number you heard online. Build a plan that can flex.

If you have questions about your own situation, or you want a second set of eyes on your retirement plan, I would genuinely love to hear from you. Leave a comment below, or reach out through VDB Wealth using the link in the description. And if this video helped make the topic clearer, do me a favor and subscribe. It really helps the channel. Thanks for watching, and I will see you in the next one.