Millions of retirement plans are built around a simple guideline: Withdraw 4% of savings in year one, adjust for inflation annually, and the money should last 30 years.
Financial adviser William Bengen introduced that formula in 1994, and it has guided retirement decisions ever since.
A new study from two economists, Gaobo Pang and Mark Warshawsky, puts numbers on where the approach falls short, and the failure rates are higher than most retirees would guess.
The researchers also identified a combination strategy that beat the 4% rule in nearly every scenario tested, from market crashes and high inflation to longer-than-average lifespans.
AEI researchers find the 4% rule has rising failure rates at older ages
In their July 2026 paper for the American Council of Life Insurers, Warshawsky and Pang modeled the 4% rule against a $1 million portfolio: a $40,000 withdrawal in year one, adjusted for inflation each year after.
The strategy delivers the most flexibility and the highest average asset balances over time, but it also has a growing probability of running out of money entirely.
The simulations showed a failure rate of about 5% by age 85, climbing to 12% at age 90, 24% at age 95, and 38% at age 100.
Christine Benz, director of personal finance and retirement planning at Morningstar, told CNBC the 4% rule works as a starting point, but retirees should consult a financial planner.
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“4% is a good back-of-the-envelope starting point…It doesn’t have to be an all-in, year-in, year-out relationship…But get a second set of eyes on this, and the planner can help you with a spending plan,” Benz told CNBC.
For a 65-year-old woman retiring today, those are not abstract odds given that roughly one in three women who reach 65 will live past 90, according to the Social Security Administration’s period life tables.
“There’s significant risk there in terms of outliving your assets,” Mark Warshawsky, a senior fellow at the American Enterprise Institute and former deputy commissioner for retirement and disability policy at the Social Security Administration, said in a statement to CNBC. “For people with typical risk aversion, that’s too risky.”
How the study accounts for taxes, Medicare, and Social Security
What separates this research from earlier work on withdrawal rates is the number of variables it incorporates simultaneously, according to the paper.
The model runs 10,000 simulations of market returns, inflation, and interest rates using JPMorgan’s 2026 capital market assumptions, with equities averaging a 6.9% geometric return and bonds averaging 4.8%.
Alongside those market scenarios, the researchers layered in federal income tax brackets indexed to inflation, the standard deduction for seniors, and the bonus senior deduction created by the One Big Beautiful Bill Act for 2025 through 2028.
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They also modeled Medicare Part B and Part D premiums, including income-related surcharges known as IRMAA that can add hundreds of dollars per month for higher earners.
The 4% rule proved particularly tax-inefficient in the model because it does not benefit from recent changes in minimum distribution rules under SECURE 2.0.
Those updated rules now encourage partial annuitization by removing an extra layer of taxation that previously penalized retirees who split their savings between annuities and investment accounts, the researchers noted.
Partial annuitization outperformed across nearly every scenario tested
The study’s central finding is that splitting retirement savings between a life annuity and a traditional investment portfolio beat both the all-withdrawal and all-annuity approaches for retirees with $250,000, $1 million, and $2 million in savings.
For a $1 million retiree, a one-time 50/50 split between annuity and withdrawals produced a lifetime utility score of 59.12, compared with 53.79 for the 4% rule alone, the paper reported.
The gradual approach scored 58.94, offering a slightly better floor in the worst market scenarios.
Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute, said that annuities remain a hard sell for many households because they are difficult to understand and typically irreversible, CNN reported.
The tradeoffs retirees face before locking in a withdrawal strategy
The 4% rule offers simplicity, but the research shows that simplicity comes at a cost that rises with age.
Warshawsky and Pang document what the 4% rule leaves a single withdrawal to absorb: the tax bracket it triggers, the Medicare surcharge that follows a year later, and the smaller Social Security check that comes with claiming early.
Partial annuitization asks retirees to give up flexibility they may never need in return for income they almost certainly will need. Whether that’s a trade worth making depends on the household.
Related: Retirees who follow the 4% rule may face a rude shock
