The 4% Rule Isn’t Enough Anymore — A Better Framework for Retirement Income

For years, the 4% Rule has been a popular guideline for retirement withdrawals. The idea was simple: withdraw 4% from your investment portfolio in the first year of retirement, adjust the amount for inflation annually, and your savings would likely last 30 years.

It’s a helpful starting point — but for today’s retirees, it’s no longer enough.

Why? Because the world has changed. Interest rates, inflation, tax laws, longevity, and market conditions today look very different from when the rule was created in the 1990s.

If you’re planning for retirement in 2026 and beyond, you need a framework that’s more flexible, more personalized, and more aligned with today’s financial landscape.

Why the 4% Rule Falls Short Today

Several realities challenge the usefulness of the original rule:

Longer Life Expectancy

Many individuals will spend 25–35+ years in retirement. Some may spend nearly as many years retired as they spent working.

Inflation Has Been Volatile

Inflation is no longer predictable or consistently low. Healthcare and long-term care costs, in particular, are rising faster than general inflation.

Market Variability

Sequence-of-returns risk — poor market performance early in retirement — can significantly increase the chances of running out of money.

Taxes Matter More Than Ever

The 4% Rule ignores tax planning. Withdrawals from Roth IRAs, traditional IRAs, 401(k)s, pensions, and taxable accounts are treated differently — and strategy matters.

With required minimum distributions (RMDs) changing, the 2026 tax law sunset approaching, and Medicare means-testing (IRMAA) thresholds, income planning needs to be intentional.

A Better Approach: Dynamic Withdrawal Planning

Instead of using a fixed percentage, a dynamic withdrawal strategy adjusts spending based on:

Market performance
Inflation levels
Tax efficiency
Life stage and priorities
Guaranteed income sources

It’s similar to how people naturally adjust spending in life — some years are expensive, others are not.

The Core Components of a Modern Retirement Income Framework

To replace the one-size-fits-all approach, I recommend a framework built around five pillars:

1. Guaranteed Income Foundation

Start with predictable sources:

Social Security
Pensions

These cover essential expenses such as housing, healthcare, groceries, and utilities.

2. Withdrawal Strategy by Account Type

Prioritize withdrawals in a tax-efficient order:

Taxable accounts
Pre-tax accounts (IRA, 401(k)) — strategically monitored
Roth IRAs — usually preserved for later years or heirs

This helps control tax brackets, IRMAA surcharges, and how long assets last.

3. Investment Strategy Built for Income

A well-constructed portfolio should prioritize:

Dividend and interest income
Global diversification
Low cost ETFs/funds
A healthy equity allocation to combat inflation

Retirement doesn’t mean abandoning growth — it means balancing stability and opportunity.

4. Guardrails and Spending Bands

Instead of a fixed 4%, use spending ranges.

Example:

Base withdrawal: 3.5%
Raise spending: If markets outperform
Lower spending temporarily: If markets decline significantly

This adaptive approach protects savings and supports long-term sustainability.

5. Annual Plan Updates

Retirement is dynamic — reviewing annually ensures flexibility and alignment with:

New tax laws
Market conditions
Personal changes
Healthcare or lifestyle needs

What This Means for You

The goal of retirement planning isn’t just to not run out of money — it’s to support a life you enjoy, confidently and sustainably.

A modern retirement income strategy helps you:

✔ Maintain flexibility ✔ Reduce taxes over time ✔ Protect against market volatility ✔ Simplify decision-making ✔ Support your lifestyle and legacy goals

Final Thoughts

The 4% Rule was useful when retirement planning was simpler. Today, retirees deserve a more thoughtful, more personalized approach.

If you’re approaching retirement or already retired and wondering whether your withdrawal rate is sustainable, you’re not alone. Many families I work with want clarity, confidence, and a plan that adapts over time.

Interested in a Personalized Retirement Income Plan?

If you'd like help building a customized retirement strategy — one optimized for taxes, investments, risk, and income — I’d be happy to talk.

By James Blue, Fee-Only Advisor | Blue Advisors

James Blue is the founder of Blue Advisors, a fee-only financial planning and investment management firm based in Columbus, Ohio.

This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. The views expressed are those of the author as of the date published and are subject to change without notice. Blue Advisors is a fee-only registered investment advisory firm. Advisory services are offered only pursuant to a written advisory agreement and to clients in the State of Ohio, the Commonwealth of Pennsylvania, and other jurisdictions where Blue Advisors is properly registered or exempt from registration. Past performance is not indicative of future results. Readers should consult with their financial advisor, tax professional, or attorney before making financial decisions.