The New '4% Rule': Finding the Right Withdrawal Strategy
Personal finance rules of thumb can be helpful, but they also become outdated as the economy, markets and needs of savers change. Some experts say that’s the case for the 4% rule.
The rule suggests withdrawing 4% of your savings during your first year of retirement, then adjusting the amount for inflation in subsequent years. But as people live longer than ever and costs continue to rise for health care and other essentials, that 4% may no longer suffice.
Must Read
The guardrails approach to the 4% rule
Another approach retirement experts say to consider is the guardrails approach, which involves adjusting your withdrawal percentage based on how the markets perform, but with minimum and maximum “guardrails.” For example, retirees who follow this approach may determine it makes sense to never withdraw more than 5% of their portfolio in a single year, no matter how well their assets perform.
But the stock market doesn't always go up, and you don’t want to have to withdraw money during downturns. A floor of 3%, for instance, can keep you on track even during years that the market performs poorly.
A 3% withdrawal bottom guardrail helps make sure you aren’t significantly compromising your lifestyle. A 5% rate at the top during positive years lets you capitalize on gains and move cash into safer assets while maintaining exposure to growth-oriented assets. If a 5% target withdrawal rate makes more sense for you, your guardrails may be 4% and 6% withdrawal rates.
Other potential adjustments
While the new rule suggests a range — like 3% to 5% — for your withdrawals depending on market conditions, there are a few other key adjustments you can make to preserve your nest egg.
The first one is to start with a lower target withdrawal rate, like the 3.9% starting point Morningstar suggests for 2026.
Another adjustment you can make is to skip the inflation adjustment, if you can. Doing so keeps more money in your portfolio, which gives you more of an advantage if the market performs well.
Extra Money: See how you can get up to $1,000 in stock when you fund a new active SoFi invest account
Monitor your portfolio and spending
The guardrail approach requires some flexibility, which means you may not be able to implement an automatic, set-it-and-forget-it approach to your finances. Instead, it will be important to monitor how your portfolio performs each year and gauge what withdrawal rate makes sense for that year. If you do want to make automatic withdrawals, however, it may make sense to set up certain annual withdrawal rates (like 3%) with monthly distributions then see if you should make additional withdrawals or cut back.
Save Smarter: Take control of your money with the Rocket Money budgeting app, one of Money's favorites
Retirees can also help preserve their wealth by pulling back on spending when the market is performing poorly.
The best strategy for your withdrawal rates will be the one that fits your specific goals and financial situation — not one that aligns perfectly with a rule of thumb.