Five risks that could upend the 4% retirement withdrawal rule

Retirement savers often argue over the advantages and drawbacks of the 4% rule, one of the most widely cited guidelines in retirement planning.

The idea is straightforward: build a nest egg large enough to withdraw 4% in the first year of retirement, then keep taking the same amount each year with inflation adjustments.

Financial adviser Bill Bengen introduced the rule in 1994, and it became popular as an easy answer to a complicated question: how to make retirement savings last.

Yet the formula does not fit every situation. Over the years, researchers have also explored scenarios in which it could fail for nearly everyone.

Below are five factors that may undermine the 4% rule.

Advisory fees

A retiree using the 4% rule with a balanced stock-and-bond portfolio might expect annual returns of roughly 8%, based on historical results.

But those returns can shrink if the saver also pays a financial adviser 1% a year to manage the account.

That cost can be added to the fees charged by investment firms that run the mutual funds holding the money. Actively managed funds can carry expense ratios of 1% or more.

Combined, those charges can total around 2% a year, making it harder to stay on track with the 4% approach.

“If you are paying a wealth adviser or money manager to manage your accounts, and they have you invested in actively managed, high-fee accounts, then you’re losing your returns to both the management fee and the expense fees for the fund,” said Caleb Silver, editor in chief of Investopedia.

Bear markets

Bengen based the 4% rule on stock and bond market performance from 1926 to 1976, a period that included the downturns of the 1930s and 1970s.

In theory, the rule works because it sets a spending rate that can preserve savings even in difficult conditions, such as falling stocks or high inflation.

But it rests on a limited sample of market history. Studies have shown that the 4% rule would not have held up in many other countries, where market returns were weaker.

There is also no promise that U.S. markets will match their past performance in the decades ahead.

Vanguard, for example, expects the U.S. stock market to produce annual returns of 4.9% to 6.9% over the next 30 years, which is far below the double-digit gains seen more recently.

“We have had exceptional stock market returns,” said Robert Brokamp, a senior retirement adviser at The Motley Fool. “How much are you banking on the United States repeating for the next 30 to 50 years what it’s done in the past?”

Early retirement

The 4% rule is built to make savings last for 30 years of retirement.

But what happens if retirement lasts longer than that?

Workers often misjudge when they will actually retire. Research from the Employee Benefit Research Institute shows a three-year difference between the age workers expect to retire, 65, and the age they actually do, 62.

Americans also tend to underestimate life expectancy. A 65-year-old woman can expect to live about 22 more years on average, and longevity generally increases with age.

When people retire early and live longer than expected, the money may need to stretch well beyond 30 years.

“These studies are always assuming a 30-year retirement,” Brokamp said. “Many, if not most, people retire before age 65, and many live to 100. Then you could be looking at a 40-year retirement.”

Cognitive decline

Research shows that financial literacy tends to decline with age.

A retiree with fading financial skills may find it harder to manage assets and monitor spending from year to year, both of which are important under the 4% rule.

“Am I cognitively equipped to make monthly decisions about what portions of my portfolio to sell?” said Doug Ornstein, senior director of guided advice at TIAA Wealth Management.

That difficulty is one reason some retirees may want professional help, Ornstein said, though that choice brings added costs.

“One of the questions we talk about with a lot of our clients is, ‘When is the time to hand over the keys of managing our portfolios?’” Ornstein said.

Cognitive decline also raises another threat: becoming a victim of fraud.

Older Americans are often targeted by scammers because they may have significant assets and can be seen as vulnerable to complex online schemes.

“You read so many stories about older people, and it’s not just older people, who lose most or all of their nest egg to a scam,” Brokamp said. “I think it is a very underrated risk to retirement security.”

Long-term care

Another major expense the 4% rule does not fully capture is long-term care.

More than 80% of Americans will need help with everyday tasks such as dressing or eating at some point, according to the Center for Retirement Research at Boston College.

The costs can be enormous. In 2025, the average assisted living community charged $6,200 a month, while a semi-private nursing home room cost $9,581, according to CareScout.

The 4% rule assumes spending stays relatively stable from year to year, but retirement rarely works that way.

Ornstein said retirees often spend more in the early years on travel and bucket-list goals, less as they slow down, and more again near the end of life as health care and long-term care needs rise.

“The 4% rule doesn’t really account for the reality that spending is dynamic,” Ornstein said.