The 4% rule has been the gold standard for retirement planning since the 1990s. The premise was simple: withdraw 4% of your portfolio in year one of retirement, adjust that dollar amount for inflation each year, and your money should last 30 years.

It was clean, memorable, and in today’s market conditions, dangerously outdated.

With Treasury yields fluctuating, stock valuations still elevated from the 2020-2021 bull run, and retirees facing potentially 35-40 years of retirement instead of 30, the assumptions underlying the 4% rule no longer hold. Here’s what you need to know instead.

Why the 4% Rule Made Sense Then

When financial planner William Bengen created the 4% rule in 1994, he used historical data including the worst market periods in history. Even someone who retired before the Great Depression could have sustained a 4% withdrawal rate.

The rule assumed 60% stocks and 40% bonds—and it worked because bond yields were substantially higher. In the 1990s, you could get 6-7% on government bonds with virtually no risk.

What Has Changed in 2026

Three major shifts have broken the 4% framework:

Bond yields remain unpredictable. While 10-year Treasury yields have risen from their 2020-2021 lows around 1.5%, they’ve been volatile. The 40% bond allocation that once delivered steady 6-7% returns can’t provide the same safety net.

People are living longer. According to Social Security Administration actuarial tables, a married couple both aged 65 has a 50% chance that at least one spouse will live past 92. That’s not 30 years of retirement—it’s potentially 35-40.

You’re likely retiring into elevated valuations. The S&P 500’s Shiller P/E ratio spent much of 2024-2025 above 30, well above its historical average of around 17. Starting retirement during high valuations increases portfolio depletion risk.

The Real Risk: Sequence of Returns

The biggest threat isn’t average returns—it’s the order in which they happen.

If you retire with $1 million and the market drops 20% in year one, your portfolio falls to $800,000. Withdraw $40,000 for living expenses, and you’re at $760,000. Even if the market recovers 25% in year two, you’re only back to $950,000. Those shares you sold at depressed prices can’t participate in the recovery.

This is sequence-of-returns risk, and it’s why your first retirement decade is critical.

What Works Better: Dynamic Withdrawal Strategies

Recent research from Morningstar, Vanguard, and academic institutions has focused on dynamic strategies that adjust withdrawals based on market conditions and portfolio performance. Here are three approaches gaining traction:

The Guardrails Approach

Set upper and lower spending boundaries that adjust based on portfolio performance. Start withdrawing 5% of your initial portfolio. If your portfolio grows 20% above its inflation-adjusted value, increase withdrawals by 10%. If it falls 20% below, decrease withdrawals by 10%.

Using our $1 million example: you start withdrawing $50,000. After five years, your portfolio should theoretically be worth $1.16 million (adjusted for 3% inflation). If it’s actually $1.39 million or more, bump your withdrawal to $63,690. If it’s fallen to $928,000 or below, reduce to $52,110.

This method shows 95%+ success rates in historical back-testing because you’re cutting spending before damage becomes irreversible.

The RMD Method

TThe IRS requires minimum distributions from retirement accounts at age 73. These percentages start conservatively and increase with age:

• Age 73: 3.77%
• Age 80: 5.35%
• Age 85: 6.76%
• Age 90: 8.77%

Some planners recommend using these RMD percentages across your entire portfolio, not just your IRA. You mathematically cannot outlive your money because the withdrawal rate is based on remaining life expectancy. The tradeoff is lower initial spending than the 4% rule would allow.

The Bucket Strategy

Divide your portfolio into three time-based buckets:

Bucket 1 (Years 1-3): $150,000 in cash or short-term bonds for immediate spending. You never touch stocks during a downturn.

Bucket 2 (Years 4-10): $350,000 in intermediate-term bonds that refills Bucket 1 annually.

Bucket 3 (Years 11+): $500,000 in stocks for long-term growth. Only tap this after strong market years to rebalance.

This strategy gained popularity after 2008-2009, when retirees using the 4% rule were forced to sell stocks at the bottom. Bucket users simply lived off cash and bonds while waiting for recovery.

What Current Research Shows

Vanguard’s 2025 research on dynamic spending strategies demonstrates that small, infrequent spending reductions during down markets enable retirees to spend more overall during retirement. Their analysis of three different retirement start years (1973, 1983, and 1993) showed dynamic strategies consistently outperformed the rigid 4% rule.

What About Taxes?

Every withdrawal strategy must account for taxes, and this is where the math gets complicated.

If you’re withdrawing from a traditional IRA or 401(k), your entire withdrawal is taxed as ordinary income. A $50,000 withdrawal might only net you $40,000 after federal and state taxes.

If you’re withdrawing from a Roth IRA, it’s tax-free. Your $50,000 withdrawal gives you the full $50,000.

If you’re withdrawing from a taxable brokerage account, you’re only taxed on gains, and those are taxed at lower long-term capital gains rates if you’ve held the investments for more than a year.

Smart withdrawal sequencing matters as much as withdrawal rate. Many retirees benefit from withdrawing from traditional IRAs first (to minimize future RMDs and potential taxes), then taxable accounts, then Roth IRAs last. Others benefit from Roth conversions in early retirement when they’re in lower tax brackets.

The point: A 4% withdrawal strategy that ignores tax efficiency could actually require a 5% or higher withdrawal rate to net the same after-tax income.

What to Do Right Now

If you’re retiring in 2026 or recently retired, here’s your action plan:

Run worst-case scenarios. Model what happens to your portfolio if stocks drop 30% in your first year of retirement. Can you reduce spending by 10-15% if needed? Do you have Social Security or a pension that covers baseline expenses?

Stress-test your first decade. The years from 65 to 75 will determine whether your retirement succeeds or fails. Build in cushion during this period—consider part-time work, delay major purchases, or plan to reduce discretionary spending if markets don’t cooperate.

A 2019 study found that working just two more years—or earning part-time income equivalent to 25% of your former salary for two years—improved portfolio survival rates by 20-30%.

Consider your withdrawal sources. Don’t think of this as a single portfolio with a single withdrawal rate. You likely have multiple accounts with different tax treatments. Optimize the order in which you tap them.

Schedule annual reviews. Set a specific date each year—January 1st or your birthday—to review portfolio performance and adjust your withdrawal if needed. Markets change. Your health changes. Your spending needs change. Your withdrawal strategy should too.

The Bottom Line

The 4% rule provided a useful starting point for retirement planning, but 2026 market conditions demand more nuance. Lower and less predictable bond yields, longer life expectancies, and elevated stock valuations mean a static withdrawal rate could leave you short.

The better approach: Start with 4% as a baseline, but adopt a dynamic strategy. Whether you choose guardrails, RMD-based percentages, or a bucket approach, the key is building in flexibility.

Your retirement could last 35 years or more. The withdrawal strategy that gets you through it isn’t the one that’s easiest to remember—it’s the one that adapts when markets don’t cooperate. Run the numbers now, plan for the worst, and give yourself permission to adjust as reality unfolds.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.