If you've spent any time reading about retirement, you've heard the 4% rule. Withdraw 4% of your portfolio in year one, adjust for inflation each year, and your money should last 30 years. The number is so embedded in the cultural conversation that most people treat it as a fact.
It isn't a fact. It's a research finding from a 1994 study by William Bengen — and even Bengen has spent the last 30 years trying to explain what it does and doesn't say.
What the study actually showed
Bengen tested every rolling 30-year period in U.S. market history through 1992 against a 50/50 stock-bond portfolio. He asked: what was the highest starting withdrawal rate that survived even the worst 30-year period? His answer: roughly 4.15%, ratcheted to inflation. He called it the SAFEMAX.
Two things to notice. First, it's a historical worst case, not an average. The median sustainable rate was higher; the average ending balance after 30 years was multiples of the starting balance. Second, the worst case was usually a retiree who started in 1929, 1937, 1966, or 1973 — when valuations were stretched and the market sequence punished early withdrawals.
Why the rate isn't fixed
Your sustainable withdrawal rate depends on:
- Portfolio mix. A more aggressive portfolio supports a higher rate over long horizons but a lower one if the worst sequence hits early.
- Time horizon. A 25-year retirement supports a higher rate than a 40-year one (early-retired tech worker problem).
- Spending flexibility. If you can cut spending by 10% in a bad market, your sustainable rate is materially higher than someone with fixed expenses.
- Other income. Social Security, pensions, and rental income reduce the burden on the portfolio — the relevant rate is on the gap, not the total spending.
- Starting valuation. Retiring at the top of a bull market and at the bottom of a crash are not the same.
What the modern research says
Most academic work in the last decade lands somewhere between 3.0% and 4.5% depending on assumptions. Morningstar's 2024 update came in at 4.0%. The Center for Retirement Research has found 3.5% is a more conservative anchor for current valuations and life expectancies.
The right answer is rarely a single number. It's a strategy with built-in checkpoints — annual review, glide-path adjustments, and the willingness to flex spending if a bad sequence shows up early.
What to actually do
- Project your spending in today's dollars, separating discretionary from non-discretionary
- Subtract guaranteed income (Social Security, pensions) from total spending — your portfolio only has to cover the gap
- Stress-test the gap against sequence-of-returns risk — what happens if the first five years of returns are −2% per year?
- Build a dynamic rule rather than a static number — for example, withdraw more in good years and less in bad ones
Talk to an IronBridge advisor about running your real numbers through every 30-year window since 1926. The output is rarely a single 4% answer — it's a strategy that survives the worst window and thrives in average ones.