Most financial planners will direct you to the 4% rule, a guideline that has shaped retirement planning conversations for more than three decades.

The formula sounds clean. Withdraw 4% of your portfolio in year one, adjust for inflation every year after, and your savings should survive a 30-year retirement.

New research from the Schwab Center for Financial Research reveals that this widely followed formula carries structural problems most retirees never consider. The rule treats every retiree identically, ignoring differences in portfolio composition, planning horizon, and the reality that your spending patterns will shift throughout retirement.

What Schwab found, and what it means for your specific financial future, could change how you approach every withdrawal from your retirement accounts.

Schwab’s research identifies 6 problems with the 4% rule

The 4% rule was created by financial planner William Bengen, according to CNBC. He analyzed U.S. market returns from 1926 to 1992 and concluded that a retiree withdrawing 4% in year one could adjust for inflation annually, without depleting a balanced portfolio over 30 years. 

The rule assumes a 50/50 split between stocks and bonds, relies on historical returns, and targets near-100% confidence that the money will last.

The analysis, authored by Rob Williams and Chris Kawashima of the Schwab Center for Financial Research, outlines six core problems with the traditional approach.

1. The rule is rigid and assumes you increase spending by inflation every year, regardless of how your portfolio performed or whether your actual expenses changed.
2. It applies to a hypothetical 50/50 stock-and-bond portfolio, which may not match your allocation or how you adjust investments as you move through retirement.
3. It relies on historical market returns, while Schwab’s own projections suggest that stock and bond returns over the next decade are likely to trail long-term historical averages.
4. It assumes a 30-year time horizon, but the average remaining life expectancy for a 65-year-old is about 17.1 years for men and 19.9 years for women, according to the Social Security Administration’s period life expectancy data.
5. It targets near-100% confidence that the portfolio survives, which forces you to spend far less than necessary to achieve that extreme margin of safety.
6. It does not account for taxes or investment fees, which are paid from the amount withdrawn and directly reduce what you can use for living expenses each year.

Your portfolio mix changes how much you can safely withdraw each year

Schwab’s data show that asset allocation has a relatively small impact on your sustainable first-year withdrawal rate. A conservative portfolio and a moderately aggressive one both land between roughly 4.3% and 4.5% for a 30-year retirement at 75% confidence.

The real difference shows up in ending portfolio balances after 30 years. A moderately aggressive portfolio could end with roughly $5.7 million in remaining assets, compared to about $1 million for a conservative allocation, based on Schwab’s hypothetical projections using a $1 million starting balance.

That gap matters because portfolio composition is not strictly a mathematical decision. Research shows the emotional pain of investment losses exceeds the satisfaction from equivalent gains, and that feeling intensifies in retirement.

Choosing an allocation you can tolerate during a downturn is just as important as maximizing your potential ending balance.

Asset allocation barely shifts withdrawal rates but drives long-term outcomes, making risk tolerance as important as returns in retirement.

DC Studio/Shutterstock

Targeting 75% to 90% confidence gives you a more realistic spending range

Schwab’s framework asks you to choose a confidence level, which represents the percentage of simulated scenarios in which your portfolio did not run out of money.

A 90% confidence level means that in 900 out of 1,000 projected scenarios, the portfolio still had a positive balance at the end of your designated time period.

The firm recommends targeting a confidence level between 75% and 90%, rather than the near-100% level embedded in the original 4% rule. Aiming for 90% means spending less each year, with the trade-off being a lower chance of depleting your savings over a full retirement.

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A 75% confidence level gives you a higher annual spending limit and works well for retirees who can remain flexible with their budgets. Schwab’s position is that 75% represents a reasonable balance between the risk of overspending your portfolio too early and the risk of underspending and missing out on the retirement you planned for.

The practical gap between these two levels can translate to thousands of dollars per year in additional spending power. For a $1 million portfolio over a 30-year horizon, the difference between a 75% and 90% confidence withdrawal rate is roughly 0.6 to 0.7 percentage points, or approximately $6,000 to $7,000 in year one of retirement.

Schwab’s personalized withdrawal rates based on your time horizon

Schwab provides a framework linking your planning time horizon to a recommended asset allocation and withdrawal rate range. These figures are based on 10-year projected returns, updated annually by Charles Schwab Investment Management.

Schwab’s suggested withdrawal rates by time horizon

• 30-year horizon: Moderate allocation (35% bonds, 35% large-cap stocks, 15% international, 10% mid/small-cap, 5% cash), with an initial withdrawal rate between 3.8% and 4.5% at 75% to 90% confidence
• 20-year horizon: Moderately conservative allocation (50% bonds, 25% large-cap stocks, 10% international, 10% cash, 5% mid/small-cap), with an initial withdrawal rate between 5.4% and 6.0%
• 10-year horizon: Conservative allocation (50% bonds, 30% cash, 15% large-cap stocks, 5% international), with an initial withdrawal rate between 10.3% and 10.7%

These rates assume you follow the same spending rule throughout retirement without adjustments. Schwab recommends reviewing your spending rate at least annually and recalculating based on your current portfolio balance.

What other retirement researchers are finding about safe withdrawal rates

Schwab is not alone in questioning the traditional 4% approach. Morningstar’s 2025 State of Retirement Income research sets the safe starting withdrawal rate for 2026 retirees at 3.9%, assuming a 30-year time horizon and a 90% probability of success.

Morningstar’s research also found that retirees willing to accept variability in their annual spending can safely start withdrawing at rates approaching 5.7%. Dynamic withdrawal strategies, where you adjust spending based on market performance, consistently supported higher starting rates than a fixed approach.

“Don’t just take that 3.9% and run with it. You probably can and should enlarge your spending if you are willing to be flexible,” said Christine Benz, Morningstar director of personal finance and retirement planning.

Bengen himself has revised his original 4% figure upward over the years, most recently suggesting 4.7% as the worst-case historical safe withdrawal rate. Retirees who stick with 4% are likely “cheating themselves a little bit” of the retirement they earned, he told CNBC in 2025.

How to build a spending plan that reflects your specific retirement

Schwab’s core message is that flexibility is the single most important factor in sustainable retirement spending. If you can reduce discretionary expenses during a bear market or delay a major purchase when your portfolio dips, you dramatically increase the probability that your money lasts.

Steps to personalize your withdrawal strategy

• Determine how long you need your money to last by reviewing your health, family history, and the SSA’s life expectancy calculator at ssa.gov.
• Factor in Social Security, pensions, annuities, and other non-portfolio income before calculating how much you need to withdraw from investments each year.
• Choose a confidence level between 75% and 90% based on your comfort with risk and your ability to adjust spending if markets decline.
• Review your withdrawal rate at least annually and recalculate based on your current portfolio balance, not just the original starting amount.
• Consider required minimum distributions as part of your withdrawal amount if you hold tax-deferred accounts such as a traditional IRA or 401(k).

The goal is not to find one perfect number that works for every year of your retirement. Your spending will shift, markets will fluctuate, and your priorities will change over time. A plan that accounts for all of those variables will serve you far better than any fixed rule.

The 4% rule is a starting point for your retirement, not a complete plan

The 4% rule gave millions of Americans a simple answer to one of the most complicated questions in personal finance. Schwab’s research makes clear that simplicity comes with trade-offs. If you treat 4% as a rigid formula, you either spend too conservatively and miss the retirement you worked for, or you ignore risks that could leave you short later.

Your withdrawal rate should reflect your personal timeline, your portfolio, your other income sources, and your willingness to adjust. Use Schwab’s framework as a guide, review your plan every year, and stay flexible enough to respond when life and markets shift.

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