The 4 percent rule for retirement is a simple guideline for how much you can pull from your savings each year without running out over a 30-year retirement. You take 4% of your portfolio in year one. Each year after that, you raise the dollar amount by the rate of inflation. On a $1,000,000 portfolio, that means $40,000 in the first year, and about $41,200 the next year if inflation runs at 3%.
The rule gives you a fast, honest gut check. It does not give you a full income plan. This guide covers where the number came from, what it means in 2026, and how Tucson retirees adjust it for Social Security, Arizona taxes, and real spending.
Where the 4 Percent Rule Came From
Financial planner William Bengen introduced the rule in a 1994 study in the Journal of Financial Planning. He tested how much a retiree could withdraw each year, adjusted for inflation, from a portfolio split between large U.S. stocks and intermediate-term government bonds. He ran those tests over 30-year retirements using historical U.S. market returns.
The answer landed just above 4%, so the industry rounded it to an easy number. That history matters, because it explains the rule’s built-in assumptions:
- A 30-year retirement. The rule aims to last 30 years. A longer retirement calls for a lower starting rate.
- A fixed spending path. You raise withdrawals with inflation every year, no matter what the market does.
- A balanced portfolio. The original test used a roughly even mix of stocks and bonds.
- Savings only. The rule covers your portfolio. It says nothing about Social Security, pensions, or taxes.
What Is the 4 Percent Rule Worth in 2026
Morningstar’s latest research puts the starting withdrawal rate at 3.9% for retirees who want the same inflation-adjusted spending every year. That figure assumes a 30-year retirement, a portfolio holding 30% to 50% stocks, and a 90% chance of having money left at the end. Morningstar’s prior estimate sat at 3.7%, so the number moves a little each year with market prices and inflation expectations.
Flexibility changes the picture. The same research found that retirees willing to let spending rise and fall with the market can start closer to 6%. You can read the full findings in Morningstar’s article, What’s a Safe Retirement Withdrawal Rate for 2026.
The takeaway: 4% sits close to the current research for a fixed spending plan. The bigger gains come from how you structure your spending, which accounts you draw from, and when your other income starts. Our guide to income planning in Tucson walks through how those pieces fit together.
How Much Do You Need to Retire Using the 4% Rule
You need about 25 times the yearly amount you plan to pull from savings. That shortcut comes straight from the rule itself, because 4% is one twenty-fifth of a portfolio. If you plan to withdraw $60,000 a year, the rule points to about $1,500,000.
The key word is “withdraw.” Many people run this math on their total spending, which overstates what they need. Social Security and any pension cover part of the bill, and the portfolio only has to cover the rest.
A Tucson Couple Runs the Numbers
Picture a retired couple in Oro Valley who plan to spend $110,000 a year. Their Social Security checks add up to $4,000 a month, or $48,000 a year.
- Without counting Social Security: $110,000 divided by 4% points to $2,750,000.
- Counting Social Security: The portfolio only needs to cover $62,000 a year. At 4%, that points to $1,550,000.
- At Morningstar’s 3.9%: The same $62,000 points to about $1,590,000.
That is a $1,200,000 difference from one line in the plan. It also shows why your claiming age matters so much. A larger Social Security check shrinks the amount your savings has to carry for the rest of your life. Our guide to the best age to take Social Security walks through that decision.
How Long Will My Money Last With the 4 Percent Rule
The rule was built to make savings last about 30 years. For a couple who retires at 62, that runs to age 92. The Social Security Administration estimates that about 1 in 3 people who are 65 today will live to at least 90, so a healthy couple in their early sixties should plan for at least one spouse to need income well past 90.
Retire earlier, or plan for a longer life, and a lower starting rate makes sense. Retire later, or hold other income that covers your basics, and the rule has more room.
Does the 4% Rule Include Social Security
No. The rule only covers the money you pull from your savings. Bengen’s original study and Morningstar’s current research both leave Social Security, pensions, and other income outside the math. That works in your favor, because every dollar of Social Security is a dollar your portfolio does not have to produce. The couple above needs $1,200,000 less in savings once their Social Security checks enter the picture.
Why the 4 Percent Rule May Not Fit Your Retirement
This rule of thumb may not fit your retirement because real retirees do not spend, earn, or pay taxes the way the rule assumes. Four gaps show up again and again.
It Ignores Taxes
A 4% withdrawal from a traditional IRA counts as taxable income. The IRS and Arizona both take a share before you spend a dollar. Arizona’s flat 2.5% income tax alone takes up to $1,550 of a $62,000 IRA withdrawal, and federal tax takes more. Our guide to retiring in Arizona and taxes covers which income Arizona taxes and which it leaves alone. The order you draw from taxable, tax-deferred, and Roth accounts changes how much of each withdrawal you actually keep.
It Ignores the Order of Market Returns
A market drop in your first few years of retirement hurts far more than the same drop ten years in. You sell shares at low prices to fund your spending, and those shares never get the chance to recover. The 4% rule handles this by starting low enough to survive the worst historical stretches, which means retirees in most historical periods could have spent more.
It Assumes Flat Spending
Real spending often follows a different shape. Many retirees spend more in their active early years on travel and projects, then less later, with health costs rising near the end. A rule that raises spending with inflation every year does not match that shape.
It Treats Your Savings as Your Only Income
The rule never looks at Social Security, a pension, rental income, or an annuity. Those sources change how much risk your portfolio can take and how much it has to produce.
Which Accounts Should Fund Your Withdrawals
The account you draw from matters almost as much as the rate you draw. Most retirees hold three kinds of accounts, and each one is taxed differently:
- Taxable brokerage accounts: You pay tax only on gains and dividends, often at lower long-term capital gains rates.
- Traditional IRAs and 401(k)s: Every dollar you withdraw counts as ordinary income.
- Roth accounts: Qualified withdrawals come out tax free.
A common starting order draws from taxable accounts first, then traditional accounts, then Roth. A stronger plan blends them year by year. In the years before Social Security and required distributions begin, many households fill a low tax bracket with IRA withdrawals or a Roth conversion before RMDs, then lean on taxable or Roth money in years when other income runs high. The withdrawal rate tells you how much to spend. Account sequencing decides how much of it you keep.
Better Ways to Use the 4% Rule
You do not have to throw the rule out. Many planners use 4% as a starting estimate, then build a structure around it. Three approaches come up most often.
Spending Guardrails
Guardrails set a starting withdrawal, then a range. If the portfolio grows past an upper line, you give yourself a raise. If it falls below a lower line, you trim spending for a while. This flexibility is what lets Morningstar’s flexible strategies start near 6% instead of 3.9%.
A Bucket Plan
A retirement bucket strategy splits savings by when you will need the money. Near-term spending sits in cash and short-term holdings, so a market drop does not force you to sell stocks at a loss. It answers the order-of-returns problem head on.
An Income Floor
Some households cover their basic bills with income that does not depend on the market: Social Security, a pension, or an income annuity backed by the issuing insurer. With the basics covered, the portfolio can fund travel, gifts, and extras on a flexible schedule. Our page on income for life explains how that piece works.
How We Turn the 4 Percent Rule Into a Real Income Plan
Global Investment Strategies® has helped Tucson families turn savings into steady retirement income since 2009. We start where the rule stops. We map your Social Security timing, your accounts by tax type, your pension or business income, and your estate plan, then we work with your CPA so every withdrawal lands in the right tax year.
If you want to see what your own savings can support, talk with Doug and Jay about your retirement income plan. We meet at your home or office across Tucson, Oro Valley, Marana, and the Catalina Foothills.
This article is for education only and is not individual investment, tax, or legal advice. Withdrawal rates and tax rules change, and past market results do not predict future returns. Review your own situation with your tax professional before you change your withdrawals.
