Millions of Americans build their savings around Dave Ramsey’s Baby Steps, but the plan’s guidance on withdrawing that money has become the most contested part.
Ramsey recommends an 8% annual withdrawal rate, based on his assumption that a stock-heavy portfolio will average 12% returns per year, leaving a 4-percentage-point cushion for inflation.
Two major research studies published over the past year place the safe withdrawal ceiling far below that target.
Morningstar’s 2026 State of Retirement Income report pegs the safe starting rate at 3.9% for a 90% probability of lasting 30 years.
William Bengen, who created the 4% guideline in 1994, raised his safe maximum to only 4.7% in his 2025 book, “A Richer Retirement,” after adding broader asset classes.
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Morningstar sets the safe withdrawal floor for 2026 retirees
Morningstar’s research uses forward-looking projections for stock returns, bond yields, and inflation to calculate a starting withdrawal rate for new retirees. The firm’s base case assumes a balanced portfolio with 30%-50% in equities and a 30-year time horizon.
The 3.9% figure is slightly above the 3.7% rate from the prior edition, driven by modestly improved return expectations across asset classes. The report confirmed that earlier editions set the base case at 3.3% for 2021, 3.8% for 2022, and 4.0% for 2023.
Retirees willing to accept some fluctuation in their annual spending can start at a rate approaching 6%. The constant percentage approach and similar strategies tie each year’s draw directly to the portfolio’s current value.
Portfolios with stock weightings above 50% introduce more volatility, which lowers the safe starting percentage under spending systems designed for income stability.
Higher equity allocations fail to raise the safe withdrawal rate under those systems because the added volatility offsets stronger expected growth, the data confirmed.
How Bengen’s 4% guideline became a 4.7% ceiling
William Bengen published his landmark study in the October 1994 Journal of Financial Planning using a two-asset portfolio of stocks and government bonds. He tested every rolling 30-year window back to 1926, and a 4% inflation-adjusted draw never depleted the account.
His original analysis relied on a narrow asset mix, and over the next decades he expanded it to match how diversified investors hold wealth today.
That research asked whether a more diversified mix could raise the safe ceiling above 4% without exposing retirees to greater risk of depletion.
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Bengen expanded his portfolio to a seven-asset-class mix, adding mid-cap, small-cap, micro-cap and international equities to his original stocks-and-bonds base, lifting his worst-case safe withdrawal rate to 4.7%, he told Financial Advisor Magazine.
That is up from the 4.5% he had moved to after introducing small-cap stocks in 2005, Bengen told Michael Kitces on the Financial Advisor Success podcast.
The book showed that this broader portfolio pushed year-one income from $40,000 to $47,000 on a $1 million account, below Ramsey Solutions’ 8% target.
The gap hinges on Ramsey’s core assumption that equities will average 12% or more indefinitely, a figure that reveals nothing about early-year returns, InvestmentNews confirmed.
Historical data does support that long-run stock average, but the figure masks the volatile stretches that can devastate a new retiree’s withdrawals.
An early market crash exposes the cost of an 8% withdrawal
The threat that separates building wealth from spending it down is sequence-of-returns risk, the outsized damage a steep early decline causes, according to Schwab’s guide on sequence-of-returns risk.
Shares sold near the bottom miss the recovery, and the lost compounding cannot be made up over the remaining years of retirement.
A $1 million portfolio withdrawing 8% takes $80,000 in year one, and a 25% decline then drops the remaining balance to roughly $690,000. The same $80,000 draw in year two would equal roughly 12% of what remains, 24/7 Wall St’s scenario modeling showed.
At a 4% starting rate, the same downturn leaves $720,000, and the next annual draw equals roughly 6%, a more survivable load.
Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar, told The Motley Fool that longtime retirees have cleared the danger zone.
<strong><em>The people who need to be really careful are the newly retired,</em></strong>
Retirees who faced poor early returns and held withdrawals flat were significantly more likely to exhaust savings, Morningstar’s 2026 report found.
Flexible withdrawal approaches can improve those odds, but they demand tolerating meaningful year-to-year swings in annual income that not every household can absorb.
How to pressure-test your first-year withdrawal before you commit
Bengen said the average safe withdrawal rate across 100 years of retirees has been “a little bit over 7%,” well above the 4.7% worst-case floor from his latest research.
Morningstar’s research recommends subtracting guaranteed income from Social Security and any pension before choosing a portfolio withdrawal rate. The draw from savings only needs to cover the gap, and delaying Social Security to raise the monthly benefit strengthens that cushion.
Retirees should also separate fixed monthly obligations from discretionary spending before selecting a withdrawal rate, Bengen advised in his book. Those fixed costs form a floor that cannot be trimmed during bear markets, and they should anchor the withdrawal calculation.
Related: Dave Ramsey warns American workers on 401(k)s, IRAs, Social Security
