06.24.26

The 4% Rule May Be Costing Retirees Money

by: Tracey Longo

Morningstar research suggests the long-standing 4% retirement withdrawal rule may be overly conservative and could cause retirees to underspend and miss out on income during retirement. Portfolio strategist Amy Arnott said flexible spending approaches that adjust withdrawals based on market conditions can support higher sustainable income levels than fixed rules. Morningstar’s updated baseline safe withdrawal rate for 2026 is 3.9% under a rigid approach, but flexible strategies such as constant-percentage spending and endowment-style methods can support starting withdrawal rates closer to 5.7%. In some cases, probability-based “guardrails” approaches produced the highest lifetime spending, increasing total withdrawals by about 31% compared with traditional fixed strategies while maintaining manageable volatility. The research also notes that retirees typically spend less over time rather than maintaining constant inflation-adjusted spending. Morningstar concludes that dynamic, advisor-guided withdrawal strategies better reflect real-world behavior and may significantly improve retirement outcomes compared with rigid rules like the 4% guideline.

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