The 4% Retirement Income rule has a good reputation, and it earned it. For decades, it gave retirees a simple answer to a scary question. How much can I spend without running out of money?
Simple and optimal aren't the same thing, though.
New research from Morningstar makes that point hard to ignore. It suggests a lot of retirees, that adopt this approach, are being too careful with their money. Careful is usually a virtue. In retirement, it can also mean dying with a full tank and a list of trips you never took.
Tracey Longo covered the findings for Financial Advisor Magazine. The research comes from Amy Arnott, a portfolio strategist at Morningstar, who walked advisors through it during a webcast hosted by Kitces.com. Here's what stood out, and what it means for real people who'd rather enjoy their savings than admire them.
Flexibility beats the rulebook
Morningstar set its fixed-spending safe withdrawal rate for 2026 retirees at 3.9%. That's the careful number. Pick a percentage on day one, adjust it for inflation, and never look up again.
The flexible strategies told a different story.
Arnott's team tested eight of them. The top performers, a constant-percentage approach and an endowment-style method modeled on how universities spend, supported starting withdrawal rates of 5.7%. On a $1 million portfolio, that's roughly $57,000 in year one instead of $39,000. That gap isn't rounding error. Almost 50% more! That's several nice trips, a paid-off car, or a few more years of helping the grandkids while you're around to enjoy it.
The tradeoff is honest. Flexible means flexible. You spend a little less when markets drop and a little more when they recover. You have to be willing to adjust. Most people already do that in real life. Their retirement plan just never let them.
Retirees don't actually spend in a straight line
This is the part the old rule gets most wrong.
The 4% rule assumes you spend the same inflation-adjusted amount every single year. Morningstar points out that humans don't behave that way. Spending tends to fall as people age. The research cited shows inflation-adjusted household spending dropping 19% between ages 65 and 75, 34% by age 85, and 52% by age 95.
People spend more in the early "go-go" years, when they're healthy and itching to do things. Then it tapers. Planning as if an 85-year-old and a 65-year-old spend identically isn't conservative. It's just inaccurate.
The strategy that won
Of the eight methods, one stood out: probability-based guardrails. It adjusts spending based on the odds your plan stays on track over time.
It produced the highest lifetime spending in the study while keeping income reasonably steady. Over 30 years, it generated about $1.55 million in spending versus roughly $1.18 million from the traditional 3.9% approach. That's around $370,000 more, or 31% more, over a retirement.
Arnott noted this method also mirrors how good advisors already work. They revisit the plan, they make adjustments, they don't set a formula in 2026 and ghost the client for three decades.
Two more things worth your attention
Balanced portfolios did the heavy lifting. Allocations of roughly 30% to 50% in equities produced the strongest results. You don't need to swing for the fences to make this work.
And the backdrop is friendlier than it was. Morningstar sees stock valuations as elevated but not extreme, and higher bond yields have improved the outlook for withdrawals. That's a big shift from 2021, when near-zero yields pushed the safe rate down to 3.3%. Higher yields are doing retirees a quiet favor.
The real takeaway
Decumulation, the unglamorous work of turning a nest egg into income, is genuinely hard. Arnott called it the toughest problem in financial planning. She's right.
That difficulty is exactly where good planning pays for itself. The 4% rule was never meant to be a ceiling. It was a floor built for a worst case. Treating a worst-case rule as your spending plan can quietly cost you the very lifestyle you saved for.
Spend with a plan. Stay flexible. Keep checking in. I'm sure your future self would rather have memories than a slightly larger account balance nobody gets to use.
One note: this is commentary on published research, not personalized advice. Your numbers, your timeline, and your goals should drive your plan. To customize a retirement strategy for your specific needs, contact me at BryonT@WRAnderson.com or 281-974-1965.
References
- Longo, Tracey. "The 4% Rule May Be Costing Retirees Money, Morningstar Says." Financial Advisor Magazine, June 24, 2026. https://www.fa-mag.com/news/the-4--rule-may-be-costing-retirees-money--morningstar-says-87521.html
- Arnott, Amy. Morningstar research on flexible retirement withdrawal strategies, presented via a Kitces.com advisor webcast (June 2026), as reported in the article above.
- Morningstar. "Morningstar Safe Retirement Withdrawal Rate For 2026 Is 3.9%." Financial Advisor Magazine. https://www.fa-mag.com/news/morningstar-safe-retirement-withdrawal-rate-for-2026-is-3-9-85940.html