You saved for decades, watched compound interest do its thing, and finally crossed the retirement finish line with a solid nest egg. Now comes the question that keeps many new retirees up at night: how much of that portfolio can you actually spend each year?
For roughly 30 years, millions of Americans have defaulted to the same answer, a tidy little number baked into the financial planning canon. You take 4% of your portfolio in year one, adjust for inflation every year after, and hope the math holds for three decades.
The problem is that research now shows this approach was never designed to maximize your spending in retirement. It was built for the absolute worst-case scenario, and clinging to it could mean dying with a pile of money you never enjoyed.
A major new study puts hard numbers on just how much retirees are leaving behind by refusing to be flexible with withdrawals.
Morningstar pegs the new safe withdrawal rate at 3.9%
The State of Retirement Income report by Morningstar found that 3.9% is the highest safe starting withdrawal rate for new retirees. That figure assumes a 40% stock and 60% bond portfolio, a 30-year time horizon, and a 90% probability of not running out of money.
Researchers Amy C. Arnott, Christine Benz, and Jason Kephart used forward-looking return and inflation assumptions to reach that number. On a $1 million portfolio, a 3.9% withdrawal means you get $39,000 in year one, adjusted for inflation in every subsequent year.
That is up slightly from the 3.7% Morningstar recommended in 2024, thanks to modestly improved return expectations across asset classes. However, the critical finding buried inside this research is not the base-case number you should be focused on reading closely.
The real story is that retirees willing to accept some flexibility in their annual spending can safely start at rates approaching 6%.
The 4% rule was never meant to be your retirement spending plan
Bill Bengen introduced the 4% rule in a 1994 paper published in the Journal of Financial Planning, based on historical U.S. stock and bond returns dating back to 1926. His research found that a retiree withdrawing 4% of a balanced portfolio in year one and adjusting for inflation each year after would not run dry over 30 years.
The figure was rounded down from 4.15%, and it stuck as a default guideline for an entire generation of retirement planning. Bengen himself has since revised the figure upward, most recently suggesting 4.7% as the worst-case historical safe withdrawal rate.
He told CNBC in 2025 that retirees who stick with just 4% are likely “cheating themselves a little bit” of the retirement they earned.
The key difference between Bengen’s approach and Morningstar’s is that Morningstar uses forward-looking return and inflation projections instead of historical data. That forward-looking lens explains why Morningstar’s base-case number has bounced between 3.3% in 2021 and 3.9% in 2025 alongside shifting market conditions.
Five flexible strategies that can boost your starting withdrawal rate
Morningstar tested multiple dynamic withdrawal methods against its conservative base case of fixed inflation-adjusted spending each year. Every single flexible strategy the researchers examined supported a higher starting safe withdrawal rate than the 3.9% base case.
The guardrails approach
Developed by financial planner Jonathan Guyton and computer scientist William Klinger, this method ties your withdrawals to portfolio performance. You spend less when markets drop and give yourself a raise when your portfolio grows beyond a set threshold in a given year.
Morningstar’s research found this approach supports a 5.2% starting withdrawal rate on a 40% stock and 60% bond portfolio. On a $1 million portfolio, that is $52,000 in year one compared with $39,000 under the rigid base case, a $13,000 annual difference.
The required minimum distribution method
You can mirror the framework behind IRS required minimum distributions, dividing your portfolio value by your life expectancy each year. This method produced some of the highest lifetime spending totals in Morningstar’s simulations across all tested portfolio allocations.
The trade-off is significant: the RMD method ended with a median portfolio balance of just $120,000 after 30 years in Morningstar’s testing. If you want to leave a meaningful inheritance, this approach will likely not align with your broader estate planning goals at all.
The constant percentage method
This straightforward approach applies the same fixed percentage to your portfolio balance at the start of each year. Your spending rises when markets climb and falls when your portfolio drops, but you can never fully deplete your savings using this method.
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Morningstar found this method supports one of the highest starting withdrawal rates, though year-to-year income can swing considerably. A 90% floor on initial spending can help prevent drastic cuts, ensuring your annual income never drops below 90% of your first-year withdrawal.
Forgoing inflation adjustments after portfolio losses
This simple tweak asks you to skip your annual inflation raise in any year following a decline in your portfolio’s total value. You never actually cut your nominal spending under this method, meaning you just hold steady and wait for the portfolio to recover.
Morningstar found that this strategy delivers a modest boost to starting withdrawal rates compared with the base case, while preserving spending consistency year to year. If you want the closest thing to a fixed paycheck with slightly more spending power at the outset, this approach sits at the conservative end.
The endowment method
University endowments use a version of this strategy, withdrawing a set percentage of the portfolio’s average value over a rolling 10-year window. Smoothing your withdrawal base over a decade reduces the impact of any single bad year on your annual income, keeping cash flows steadier.
Morningstar’s testing showed the endowment approach supports one of the highest starting rates alongside the constant percentage method. You will still experience year-to-year variation, but the swings are far less extreme than taking a flat percentage of each year’s balance.
The real cost of rigid withdrawals on a $1 million portfolio
Numbers make the stakes concrete, so consider a retiree entering retirement today with exactly $1 million in a balanced portfolio. Under the 4% rule, year-one spending is $40,000, and you adjust that for inflation going forward, regardless of what the market does.
Related: Retirees may earn more with a MYGA than a savings account
Under Morningstar’s guardrails approach at 5.2%, that same retiree pulls $52,000 in year one, a $12,000 boost right at the gate. Over just the first five years of retirement, the difference in cumulative spending can exceed $60,000, yielding additional income.
Those early retirement years are precisely when you are most likely to be active, healthy, and able to enjoy travel, dining, and experiences. Christine Benz, Morningstar’s director of personal finance, has argued that underspending early in retirement is a genuine risk for many retirees.
Research from Morningstar also confirms that spending tends to naturally decline as retirees age, following a pattern economists call the “retirement spending smile.” Acknowledging that decline and planning around it can raise your safe starting rate by roughly a full percentage point, according to the same study.
Your asset allocation plays a bigger role than you probably think
You might assume loading up on stocks would give you the highest safe withdrawal rate, but the Morningstar data tells a different story. Portfolios with equity weightings between 30% and 50% delivered the best outcomes for retirees using fixed withdrawal strategies over 30 years.
Higher stock allocations introduce more volatility, which actually lowers the safe starting withdrawal rate under conservative spending systems designed for stability. That is because sequence-of-returns risk, or the danger of steep losses in early retirement, can permanently damage a heavily stock-weighted portfolio.
However, the picture shifts for retirees using flexible strategies, where equity-heavy portfolios supported higher lifetime spending in Morningstar’s simulations. The key takeaway is that your withdrawal method and your asset allocation need to work together as a matched pair, not in isolation.
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Social Security and annuities can make flexible strategies even more effective
Portfolio withdrawals are only one piece of retirement income, and Morningstar’s research emphasizes the role of guaranteed income sources alongside investments. Delaying Social Security is one of the highest-value moves a new retiree can make, especially when paired with a dynamic withdrawal approach.
Retirees who delayed Social Security benefits and combined them with the guardrails method achieved the highest lifetime spending totals. The predictable income from Social Security acts as a buffer, making year-to-year portfolio spending adjustments far easier to emotionally absorb.
Related: Social Security funds could shrink by 2032
Morningstar also explored Treasury Inflation-Protected Securities as a standalone income tool, finding that a 30-year TIPS ladder supports a 4.5% withdrawal rate. The catch is that TIPS ladders are self-liquidating, meaning your entire portfolio is spent down to zero at the end of 30 years with nothing remaining.
Annuities can also help fill the gap between essential expenses and guaranteed income, though Morningstar’s researchers note important caveats around liquidity and costs. The broader lesson is that the more of your essential expenses covered by predictable income, the more aggressively you can spend from your portfolio.
Sequence-of-returns risk can wreck even the best withdrawal plan
Morningstar’s 2025 research found that retirees who experienced poor returns in the first five years and did not adjust their spending were far more likely to go broke. This is sequence-of-returns risk in action, and it is the single biggest threat to any retirement withdrawal plan, regardless of the starting rate.
If you retire into a bear market and keep pulling the same dollar amount from a shrinking portfolio, you are selling low at the worst possible time. Flexible strategies protect against this by automatically reducing your spending when the portfolio drops, preserving capital for the eventual market recovery.
High inflation early in retirement compounds the damage, since your cost-of-living adjustments force ever-larger withdrawals from an already-stressed nest egg. If you retired during the 2022 bear market while inflation hit 9.1%, a rigid withdrawal plan would have taken a serious hit to long-term sustainability.
Choosing the right strategy depends on what you actually value most in retirement
Morningstar’s research makes one thing clear: there is no single withdrawal rate that works for every retiree, regardless of their circumstances. Your ideal strategy depends on your tolerance for spending swings, your non-portfolio income, and whether you want to leave assets to heirs.
Questions to ask yourself before picking a withdrawal method
- Can your Social Security and pension income cover essential expenses like housing, food, insurance, and healthcare without portfolio withdrawals?
- Are you comfortable with your annual spending dropping by 10% to 15% in a bad market year if it means more spending overall?
- Do you want to maximize lifetime spending for yourself, or is leaving a significant inheritance to your children a top priority?
- Is your retirement time horizon closer to 20 years or 40 years, since shorter horizons safely support higher rates above 5%?
- Would you implement a complex method like guardrails on your own, or would you need a certified financial planner to help?
If you prize paycheck-like consistency above everything else, the base-case fixed real withdrawal at 3.9% is designed exactly for that purpose. If you want to maximize spending during your healthiest years and can handle some variability, guardrails or the RMD approach deserve serious consideration.
Related: The hidden cost of retirement withdrawal rates
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