The 4% Rule, 4.7% and 3.9%: What Is a Sensible Retirement Withdrawal Rate?
Last Updated on September 10, 2026
Jurisdiction: Global. Information reviewed 28 July 2026.
William Bengen, whose research inspired the “4% rule,” has argued that a more diversified portfolio could support a starting withdrawal around 4.7% under his historical methodology. Morningstar’s latest forward-looking base case is 3.9%. The difference is not proof that one researcher can add and the other cannot. They are answering related questions with different assumptions.
What the original 4% rule actually says
The rule is commonly described as withdrawing 4% of a retirement portfolio in the first year, then increasing that dollar amount with inflation each year. On a $500,000 portfolio, the first withdrawal would be $20,000. If inflation were 3%, the next year’s planned withdrawal would be $20,600 – not 4% of whatever the portfolio happened to be worth then.
The classic research considered a roughly 30-year retirement funded by a diversified US stock-and-bond portfolio and tested whether withdrawals survived difficult historical periods. It was a planning benchmark, not a guarantee, and it did not include every fee, tax, country, asset mix or personal spending pattern.
Where 4.7% comes from
Bengen’s later work expanded the asset mix and historical analysis. Under specified allocations and a 30-year horizon, he concluded that a higher starting rate could have survived the historical periods tested. That is useful research, but “survived past US history” does not mean “cannot fail in the future.”
A 4.7% start also spends 17.5% more in year one than 4%. On $500,000, that is $23,500 rather than $20,000. The extra $3,500 may improve life today, but it also leaves less capital to absorb poor early returns.
Why Morningstar says 3.9%
Morningstar’s 2025 retirement-income research estimated a 3.9% starting rate for someone seeking inflation-adjusted spending over 30 years with a high probability of funds remaining, under its base-case assumptions. Its model is forward-looking and incorporates current valuation and return expectations. Morningstar also shows that flexible spending methods can support higher initial withdrawals because the retiree agrees to reduce or limit spending after weak markets.
| Figure | What it represents | Main caution |
|---|---|---|
| 4% | A widely used historical rule of thumb | Often repeated without its 30-year, portfolio and inflation assumptions |
| 4.7% | Bengen’s later historical work with broader diversification | Historical survival is not a future guarantee |
| 3.9% | Morningstar’s current forward-looking base case | Depends on its forecasts, success target and fixed real-spending assumption |
The risks a single percentage hides
Sequence risk
Heavy losses near the beginning of retirement are more damaging than the same losses later because withdrawals force the sale of assets while prices are depressed. Two retirees can earn the same average return and have very different outcomes.
Retirement length
A 30-year horizon may be conservative for someone retiring at 75 and inadequate for a healthy person retiring at 55. Couples also need to consider the chance that one partner lives much longer than expected.
Fees, tax and portfolio
Investment fees and tax reduce what can be spent. A portfolio concentrated in cash, speculative shares or one property does not behave like the diversified portfolios used in withdrawal studies. US tax-account rules and required distributions also affect implementation.
Spending is not flat
Real households rarely increase every expense exactly with inflation. Travel may be high early in retirement, ease later, and be replaced by care costs. A plan should distinguish essential spending from enjoyable but adjustable spending.
A more practical approach
- Calculate essential annual spending after reliable income such as Social Security or a pension.
- Choose a planning horizon that reflects age, health and a margin for longevity.
- Test the plan at more than one starting rate rather than selecting the most cheerful number.
- Hold an emergency reserve so every surprise does not become a forced portfolio sale.
- Adopt guardrails: define in advance when discretionary spending will be frozen or reduced after poor returns.
- Review annually and after major tax, health, market or household changes.
Fixed spending versus flexible spending
The classic rule provides a stable real income: after the first year, withdrawals rise with inflation regardless of the portfolio’s performance. That is reassuring for budgeting but demanding on the portfolio after bad markets.
Flexible methods respond to circumstances. A retiree might skip an inflation increase after a negative year, trim holidays when the portfolio falls below a guardrail, or spend a set percentage of the current balance. Flexibility can permit a higher initial withdrawal, but income becomes less predictable. Essential expenses should not depend on cuts the household could not actually make.
What the percentage applies to
The withdrawal rate normally applies to the investable portfolio at retirement, not total net worth. A home that will not be sold cannot fund groceries. Social Security, pensions, annuities and part-time income reduce the amount the portfolio must supply, while taxes and adviser or fund fees increase the gross withdrawal needed to produce a given amount of spending money.
Stress-test the plan
- What happens if shares fall sharply in the first two years?
- Can discretionary spending fall by 10% for several years?
- What if inflation remains high while markets are weak?
- How would the surviving partner’s income and tax position change?
- Is there a separate plan for major home, health or care costs?
- Would a longer life, a bequest goal or an early retirement require a lower rate?
A plan that works only when every assumption behaves itself is not a robust plan. The object is not to predict the future perfectly; it is to decide in advance how the household will respond when reality ignores the spreadsheet.
Three retirees, three reasonable answers
A 67-year-old with Social Security covering nearly all essentials, flexible travel spending and no strong bequest goal may tolerate a higher starting rate. A 60-year-old relying heavily on investments for fixed expenses may need a lower rate. A 72-year-old with a pension, substantial reserves and a desire to leave assets may choose a modest rate despite having the capacity to spend more.
The “right” number is therefore not the highest rate a study has ever defended. It is a rate connected to a household’s time horizon, reliable income, investments, taxes, flexibility and priorities.
This article is general education, not personalised financial, investment or tax advice. Withdrawal research involves uncertain assumptions and cannot guarantee an outcome.
