The 4% rule has been the gold standard for retirement income planning. It’s simple, easy to remember, and gives people a target to shoot for: save enough so you can withdraw 4% of your nest egg annually and not run out of money in retirement. On paper, it sounds like a solid rule of thumb—and in many cases, it can be a decent starting point.

But here's the thing: retirement isn't one-size-fits-all, and the 4% rule is starting to show its cracks. As a financial advisor who works with real people navigating real-life retirements—many of whom are affluent, DIY, and don’t want to just “coast” through their golden years—I can tell you that relying solely on this rule can lead to some serious missteps.

Let’s unpack why the 4% rule may not be accurate for your retirement.

1. It’s Based on Old Market Data

The 4% rule was first introduced in the 1990s by financial advisor William Bengen, who tested withdrawal strategies using historical market returns from 1926 through 1976. He found that, based on past performance, a portfolio with 50-75% stocks and 25-50% bonds could support a 4% annual withdrawal (adjusted for inflation) for at least 30 years in most scenarios.

But let’s be clear: those were different times.

Interest rates were higher, bond yields were more generous, and market conditions didn’t include the kind of volatility we’ve seen in the 2000s—dot-com bubble, 2008 financial crisis, COVID crash, and persistent inflation. The future may not mirror the past. And while historical data is helpful, retirement planning in today’s world needs a more dynamic approach.

2. It Doesn’t Account for Sequence of Returns Risk

One of the biggest oversights of the 4% rule is that it assumes average market returns year after year. But in real life, markets are anything but average.

If you retire into a bull market, withdrawing 4% annually might be totally sustainable. But if you retire into a bear market or hit a series of negative returns early in retirement—known as sequence of returns risk—you could deplete your portfolio faster than expected.

Imagine retiring in 2008 and watching your portfolio drop 30% while still taking out 4%. That’s a recipe for stress and financial whiplash. The 4% rule doesn’t adjust for bad timing or market downturns, which can make a huge difference in how long your money lasts.

3. It Ignores Real-Life Spending Patterns

Here's what I've seen firsthand: most retirees don’t spend the same amount every year.

Early retirement often comes with more travel, hobbies, or helping adult kids—what I call the “go-go years.” Later, people typically slow down (the “slow-go” years), and eventually spending drops even more during the “no-go” years due to health issues or simply lifestyle changes.

The 4% rule assumes static spending. But in reality, your expenses fluctuate, and you need a retirement strategy that flexes with you—not one that’s locked into a rigid annual withdrawal.

4. Inflation Has Changed the Game

The last few years have reminded all of us how powerful inflation can be. From groceries to gas to housing, prices have surged, and retirees—especially those on fixed incomes—have felt the pinch.

While the 4% rule adjusts for inflation, it doesn’t account for unexpected or prolonged spikes in inflation, which can eat away at purchasing power and force you to dip deeper into your savings. If your plan assumes 2% inflation but you’re facing 5%+ for multiple years, the math changes fast—and not in your favor.

5. It Doesn’t Factor in Taxes, Healthcare, or Big Life Events

Let’s talk about the real-world stuff that gets missed.

• Taxes: Depending on your mix of pre-tax and after-tax assets, your tax liability could significantly change how much of that 4% you actually get to spend. A $100,000 withdrawal from an IRA is not the same as $100,000 from a Roth.

• Healthcare: As you age, healthcare costs can balloon. Medicare doesn’t cover everything, and long-term care costs aren’t factored into the 4% rule at all.

• Emergencies or Family Needs: I’ve had clients unexpectedly take in grandchildren, help fund weddings, or support adult children through job loss or divorce. Life happens. Your plan has to be ready for that.

  
  

So… What Should You Do Instead?

I’m not here to bash the 4% rule entirely. It’s still a decent benchmark for starting the conversation. But for a retirement plan that truly works for you, it needs to be personalized, responsive, and flexible.

Here’s how I help clients approach it:

Dynamic Withdrawal Strategies

Instead of taking out a fixed amount each year, consider adjusting your withdrawals based on market performance. If the market’s up, you can take a little more. If it’s down, pull back and let your portfolio recover. This helps smooth out volatility and extends the life of your money.

Build a Bucket Strategy

In a bucket strategy, you divide your assets into different “buckets” based on time horizon and purpose:

• Short-term (0–3 years): Cash or cash equivalents for stability.

• Mid-term (3–10 years): Conservative investments for income.

• Long-term (10+ years): Growth-focused investments for inflation protection.

This allows you to weather market storms without having to sell stocks at a loss just to fund your lifestyle.

Consider Guardrails, Not Just Percentages

A better approach than rigid percentages is to use spending guardrails. Set a baseline income goal with flexibility to increase or decrease spending if the portfolio grows or shrinks beyond certain thresholds. This approach is more responsive and can give you peace of mind during rocky times.

Plan with Real Numbers, Not Just Averages

Retirement isn’t theoretical. You need a plan that reflects your actual expenses, taxes, goals, and risks. Working with a financial advisor—especially one who understands both the technical side and the emotional side of money—can help you build a strategy that adjusts as your life does.

Final Thoughts

The 4% rule had its moment, and for some, it still works fine. But for today’s retirees—especially those who are proactive, financially aware, and want to truly live in retirement—it’s not enough.

You deserve a plan that reflects your lifestyle, your values, and your unique financial picture. One that adapts to market realities, not just historical hypotheticals. Because retirement isn’t about just surviving on 4%. It’s about thriving with flexibility, confidence, and freedom.