The Trinity Study's 4% withdrawal rate revolutionized retirement planning in 1998. But with early retirement timelines doubling to 50-60 years, market valuations at historic highs, and sequence of returns risk threatening portfolios, the rule needs serious updating. Here's what the latest research actually says.
The 4% Rule: What It Actually Said
In 1998, three Trinity University professors published a study that would become the foundation of retirement planning: using historical data from 1926-1995, they found that retirees could safely withdraw 4% of their portfolio in year one, adjust for inflation annually, and not run out of money over 30 years in 95%+ of scenarios using a 50% stock / 50% bond portfolio.
The Revolutionary Insight
Before the Trinity Study, conventional wisdom suggested living off dividends and interest only (2-3% of portfolio), never touching principal. The 4% rule showed retirees could spend more aggressively while maintaining safety,a game changer for retirement adequacy.
Example: $1 million portfolio → $40,000 first year → adjust for inflation annually → 95% chance of lasting 30 years
The Critical Assumptions
The study made specific assumptions that limit its applicability to modern early retirement:
- 30-Year Timeline: Study tested 30-year rolling periods, matching traditional retirement (65-95)
- 50/50 Stock/Bond Allocation: Balanced portfolio was the primary recommendation
- Historical Returns: Based on 1926-1995 data including some of the best market periods in history
- Bond Yields: Historical period included sustained 5-6% bond yields (vs 1-4% in recent decades)
- Fixed Withdrawal: Spend $X year one, adjust for inflation regardless of market performance
- No Income: Assumed zero earned income after retirement
For someone retiring at 65, planning to 95, with a 50/50 portfolio, the 4% rule remains excellent guidance. But for someone retiring at 35-45, planning to 85-95, with high market valuations and low bond yields, it's a different story.
Why the 4% Rule Breaks for Early Retirement
Four major factors undermine the 4% rule's safety for early retirees:
1. Retirement Timeline Doubles (30 Years → 50-60 Years)
The Trinity Study tested 30-year periods. Someone retiring at 35-40 needs their portfolio to last 50-60 years. Each additional decade dramatically reduces success rates.
Success Rates by Timeline (4% Withdrawal, 60% Stocks/40% Bonds):
- 30 Years: ~95% success rate
- 40 Years: ~85-90% success rate
- 50 Years: ~75-85% success rate
- 60 Years: ~70-80% success rate
Why? More years means:
- More exposure to severe bear markets
- More opportunity for sequence of returns risk (crashes early in retirement)
- More cumulative inflation compounding
- Less margin for error
A 10-15% failure rate is unacceptable for someone at age 40,running out of money at 80 with potentially 15 years left is catastrophic.
2. Starting Valuations Matter Enormously
The Trinity Study used historical average valuations. But starting retirement at high valuations (as in 2025) significantly impacts outcomes.
CAPE Ratio and Safe Withdrawal Rates:
- CAPE < 15 (undervalued): 4.5-5% withdrawal rate historically safe
- CAPE 15-25 (normal): 4% withdrawal rate safe
- CAPE 25-30 (elevated): 3.5% withdrawal rate recommended
- CAPE > 30 (very high): 3% or lower withdrawal rate suggested
2025 Reality: S&P 500 CAPE ratio sits around 31-32 (as of January 2025), well above historical average of 17. Starting retirement at today's valuations historically correlated with lower safe withdrawal rates.
The mechanism: High valuations often mean lower forward returns. If stocks return 5-6% instead of historical 10%, the 4% withdrawal + inflation quickly depletes portfolios.
3. Bond Yields Are Lower (Sometimes Much Lower)
The Trinity Study period (1926-1995) included sustained bond yields of 5-8%. A 50/50 portfolio's bond allocation provided substantial income.
Historical Bond Environment:
- 10-Year Treasury yields averaged 5-6% throughout Trinity Study period
- Bonds provided reliable income component
- 50/50 portfolio benefited from significant bond income
Recent Bond Environment:
- 2020-2021: 10-Year Treasuries dropped to 0.5-1.5%
- 2024-2025: Recovered to 4-4.5%, but volatile
- Future uncertain,could drop again or stay elevated with inflation
When bonds yield 1% instead of 5%, a 50/50 portfolio loses 2% of annual income. That undermines the 4% withdrawal rate significantly. While 2024-2025's higher yields help, the extended period of low yields (2008-2021) demonstrated the rule's vulnerability.
4. Sequence of Returns Risk is Brutal
The order of returns matters more than average returns. A severe bear market in the first 5-10 years of retirement can permanently cripple a portfolio, even if average long-term returns are strong.
Example: Two Retirees, Identical Average Returns, Opposite Outcomes
Retiree A (Lucky Sequence):
- Retires with $1M, withdraws $40K/year (4%) + inflation
- Years 1-10: +8% average annual returns (good markets early)
- Years 11-30: +4% average annual returns (mediocre markets late)
- Outcome: Portfolio lasts 30+ years, ends with $800K+
Retiree B (Unlucky Sequence):
- Retires with $1M, withdraws $40K/year (4%) + inflation
- Years 1-10: +4% average annual returns (mediocre markets early)
- Years 11-30: +8% average annual returns (great markets late)
- Outcome: Portfolio depleted by year 23, runs out of money
Both averaged 6% over 30 years,but Retiree B suffered sequence of returns risk. Selling shares during early bear markets (to fund withdrawals) means fewer shares to participate in later recovery. The damage is permanent.
Early retirees face decades more exposure to this risk than traditional retirees.
What the Latest Research Actually Says
Since the Trinity Study, numerous researchers have updated safe withdrawal rate analysis with longer timelines, dynamic strategies, and modern market conditions. Here's what we know in 2025:
Updated Safe Withdrawal Rates for Early Retirement
Research Consensus (50-Year Retirement Timeline, 60/40 Stock/Bond Portfolio):
- 3.5% Withdrawal Rate: ~90-95% success rate (most commonly recommended for early retirement)
- 3.0% Withdrawal Rate: ~97-98% success rate (very conservative, near-guaranteed success)
- 4.0% Withdrawal Rate: ~75-85% success rate (too risky for most early retirees)
What This Means Practically:
- $50K annual expenses: Need $1.43M (3.5%) or $1.67M (3%) vs $1.25M (4% rule)
- $75K annual expenses: Need $2.14M (3.5%) or $2.5M (3%) vs $1.875M (4% rule)
- $100K annual expenses: Need $2.86M (3.5%) or $3.33M (3%) vs $2.5M (4% rule)
The difference between following 4% (outdated) vs 3.5% (prudent) advice is 14-33% more portfolio required,potentially years more working.
Valuation-Adjusted Withdrawal Rates
Some researchers recommend adjusting based on starting market valuations (CAPE ratio):
- CAPE < 20: Use 4-4.5% (markets undervalued, higher forward returns likely)
- CAPE 20-25: Use 3.5-4% (markets fairly valued)
- CAPE 25-30: Use 3-3.5% (markets expensive, lower forward returns likely)
- CAPE > 30: Use 2.5-3% (markets very expensive, significantly lower forward returns expected)
January 2025 Reality: CAPE ~31, suggesting 2.5-3% may be prudent for retirees starting today. That's a $2M-$2.5M portfolio for $50K expenses,versus $1.25M at 4%.
The counterargument: CAPE ratios have remained elevated for 15+ years. Waiting for "normal" valuations might mean never retiring. And modern economy/technology may support higher sustained valuations than historical norms.
Dynamic Withdrawal Strategies Beat Fixed
The Trinity Study tested fixed percentage withdrawals (4% of starting balance, adjusted for inflation forever). But dynamic strategies that adjust spending based on portfolio performance dramatically improve outcomes.
Guardrails Strategy (Most Popular Dynamic Approach):
- Start at 4% withdrawal rate
- Lower Guardrail: If portfolio falls below 80% of inflation-adjusted starting value, cut spending 10%
- Upper Guardrail: If portfolio exceeds 130% of starting value, increase spending 10%
- Reassess annually
Results: Guardrails strategy improves 50-year success rates from ~80% (fixed 4%) to ~95%+ while maintaining quality of life most years. The 10% cuts are rare and temporary in most scenarios.
Variable Percentage Withdrawal:
- Withdraw 4-5% in good market years (portfolio up 10%+)
- Withdraw 3-3.5% in flat/down years (portfolio down or up <5%)
- Withdraw 2.5-3% in severe downturns (portfolio down 15%+)
This strategy requires lifestyle flexibility but nearly eliminates failure risk. Bad years = travel less, eat out less, delay purchases. Good years = splurge a bit.
Advanced Strategies: Going Beyond Simple Percentages
Modern retirement planning has evolved beyond "pick a percentage and hope." Here are evidence-based strategies improving outcomes:
1. The Bucket Strategy
Concept: Divide portfolio into time-based buckets reducing sequence of returns risk.
Implementation:
- Bucket 1 (Years 1-5): Cash + short-term bonds = 5 years of expenses. Provides stability, never forced to sell stocks in downturn.
- Bucket 2 (Years 6-15): Balanced portfolio (50/50 stocks/bonds) = 10 years expenses. Medium-term growth and income.
- Bucket 3 (Years 16+): Aggressive growth (80%+ stocks) = remaining portfolio. Long time horizon allows weathering volatility.
Maintenance: In good market years, refill Bucket 1 from Bucket 2, refill Bucket 2 from Bucket 3. In bad years, just spend from Bucket 1 without selling crashed stocks.
Outcome: Eliminates forced selling during bear markets, dramatically reducing sequence of returns risk. Historical simulations show improved success rates vs fixed withdrawal strategies.
2. Income Floor + Variable Spending
Concept: Secure essential expenses with guaranteed income; fund discretionary spending from portfolio.
Implementation:
- Calculate essential expenses (housing, food, healthcare, utilities) = ~$30K/year
- Cover with guaranteed sources: part-time work ($15K), Social Security bridge ($10K), annuity ($5K)
- Discretionary expenses (travel, dining, hobbies) = ~$25K/year funded from portfolio withdrawals
Outcome: You can never run out of money for essentials. In bear markets, cut discretionary spending. This eliminates catastrophic failure scenarios while maintaining flexibility.
3. Rising Equity Glide Path
Conventional Wisdom: Decrease stock allocation as you age (60% stocks at 60 → 40% stocks at 80)
Recent Research: For early retirees, increasing stock allocation over time may be optimal:
- Years 1-10: 50-60% stocks (reduce sequence of returns risk when portfolio is largest and withdrawals hurt most)
- Years 11-30: 70-80% stocks (sequence risk passed, benefit from growth for later years)
- Years 31+: 60-70% stocks (moderate slightly as true old age approaches)
The Logic: Sequence of returns risk is highest early in retirement. Starting conservative, then increasing equity exposure after the danger zone passes, improves long-term outcomes for long retirements.
4. Flexible Withdrawal with Income Bridges
Best Strategy for Most Early Retirees:
- Build portfolio to 3.5% withdrawal rate of full expenses
- Plan for part-time income ($10-20K/year) for first 10-15 years reducing portfolio withdrawals
- Use guardrails (cut spending 10% if portfolio drops significantly)
- Maintain employment optionality (can return to work if needed)
Example:
- $50K annual expenses, build $1.43M (3.5% rule)
- Work part-time earning $15K/year → only withdraw $35K from portfolio (2.4% rate)
- After 15 years of part-time work + growth, portfolio is $2M+
- Stop working, withdraw $50K/year (2.5% of larger portfolio), sustainable indefinitely
This approach combines prudent withdrawal rates with realistic income expectations, nearly eliminating failure risk.
Real World Scenarios: What Should YOU Use?
Theory is great. But here's practical guidance for different situations:
Scenario 1: Traditional Retiree (Age 62-67)
Situation: Retiring at traditional age, planning to 95 (28-33 years)
Recommended Withdrawal Rate: 4% (original Trinity Study applies well)
Portfolio Allocation: 50-60% stocks, 40-50% bonds
Why: 30-year timeline matches Trinity Study, Social Security provides income floor, Medicare at 65 reduces healthcare uncertainty
Scenario 2: Early Retiree, Flexible (Age 40-50)
Situation: Retiring 40-50, planning to 85-95 (35-55 years), willing to adjust spending or return to work if needed
Recommended Withdrawal Rate: 3.5-4% with guardrails
Portfolio Allocation: 60-70% stocks, 30-40% bonds
Strategy: Start at 4%, implement 10% spending cut guardrails, maintain employment optionality
Why: Longer timeline requires caution, but flexibility provides safety margin allowing slightly higher withdrawal
Scenario 3: Early Retiree, Inflexible (Age 40-50)
Situation: Retiring 40-50, cannot/won't return to work, cannot cut spending, need near-guaranteed success
Recommended Withdrawal Rate: 3%
Portfolio Allocation: 60% stocks, 40% bonds
Strategy: High safety margin, bucket strategy for stability
Why: No flexibility means needing 97-98% success rate; 3% provides this
Scenario 4: Very Early Retiree (Age 30-40)
Situation: Retiring 30-40, planning to 85-95 (45-65 years)
Recommended Withdrawal Rate: 3-3.5% OR Barista FIRE approach
Portfolio Allocation: 70% stocks, 30% bonds (long timeline allows more aggressive)
Strategy: Either build massive portfolio (3% rate) or plan part-time income supplementing smaller portfolio
Why: 50-60+ year timeline is unprecedented; pure portfolio withdrawals are risky,income bridges dramatically improve safety
Scenario 5: High Earner, Can't Reduce Spending
Situation: $150K+ annual expenses, cannot compromise lifestyle, retiring 45-55
Recommended Withdrawal Rate: 3%
Required Portfolio: $5M+ (for $150K expenses at 3%)
Strategy: Build much larger portfolio OR continue working part-time in high-paying field
Why: High spending is inflexible lifestyle; requires maximum safety margin and massive portfolio
Common Mistakes When Applying Withdrawal Rates
Even understanding the theory, many early retirees make these errors:
Mistake 1: Ignoring Taxes
Wrong: "I need $50K/year, so I need $1.43M at 3.5%."
Right: "I need $50K after-tax, so I need to withdraw $58K (assuming 15% effective tax rate), requiring $1.66M at 3.5%."
Tax treatment matters: Traditional IRA withdrawals are fully taxable, Roth withdrawals are tax-free, brokerage accounts have capital gains. Plan for net spending needs, not gross withdrawals.
Mistake 2: Not Accounting for Variable Healthcare Costs
Wrong: "Healthcare costs $10K/year, so that's my budget forever."
Right: "Healthcare costs $10K now at age 45, but historically inflates 5-6% annually,by age 65 it'll be $25K+, and Medicare premiums/supplements add more."
Healthcare inflation exceeds general inflation. Build this into long-term plans.
Mistake 3: Forgetting About Social Security
Wrong: "I retired at 40, so I'll never get Social Security. Better build massive portfolio."
Right: "I worked 15 years, I qualify for Social Security at 62-67. That $20-30K/year dramatically reduces portfolio stress in later years."
Even early retirees with 10-20 working years qualify for Social Security. Don't ignore it in long-term planning.
Mistake 4: Rigid Adherence to a Single Percentage
Wrong: "My plan is 3.5% forever, no matter what."
Right: "I target 3.5%, but I'll adjust 10% up or down based on market performance, and I can pick up freelance work if markets crash."
Flexibility is your friend. Dynamic strategies vastly outperform rigid plans.
Mistake 5: Not Building in Income Bridges
Wrong: "I need $50K/year from portfolio, so 3.5% means $1.43M, then I quit working forever."
Right: "I need $50K/year total. If I work part-time earning $15K, I only need $35K from portfolio. At 3.5%, I need $1M,much more achievable."
Part-time income dramatically reduces required portfolio size and improves success rates. Even $10-15K/year makes an enormous difference.
The Bottom Line: 4% → 3.5% for Early Retirement
Here's what you need to know for 2025 retirement planning:
For Traditional Retirees (Age 60-67):
- The 4% rule remains solid guidance
- 30-year timelines are well-tested
- Social Security and Medicare provide additional safety
- Use 50-60% stock allocation
For Early Retirees (Age 40-55):
- Use 3.5% as baseline (not 4%)
- Consider 3% for very long timelines (50+ years) or inflexibility
- Implement guardrails (cut spending 10% if portfolio drops significantly)
- Plan for part-time income bridges reducing withdrawal stress
- Use 60-70% stock allocation for long-term growth
- Consider bucket strategy for sequence of returns protection
Practical Numbers:
- $40K/year expenses: Need $1.14M (3.5%) or $1.33M (3%)
- $50K/year expenses: Need $1.43M (3.5%) or $1.67M (3%)
- $60K/year expenses: Need $1.71M (3.5%) or $2M (3%)
- $75K/year expenses: Need $2.14M (3.5%) or $2.5M (3%)
The 4% rule isn't dead,it's just not for early retirees. For 50-60 year retirements, 3-3.5% is the new standard. Plan accordingly.
Calculate your personalized withdrawal rate and FIRE number based on your age, expenses, and retirement timeline with our comprehensive FIRE Calculator.
FAQs: Safe Withdrawal Rates
Is 4% withdrawal rate still safe for early retirement?
For retirements lasting 50+ years (retiring before age 40-45), the 4% rule shows 75-85% success rates,below the 95%+ ideal. Most researchers recommend 3-3.5% for early retirement. The Trinity Study tested 30-year periods; early retirement doubles the timeline, increasing failure risk. Using 3.5% for early retirement provides ~90-95% success rates similar to the 4% rule for traditional retirement. If you're retiring at 40 needing money until 90, use 3.5% or lower.
What's sequence of returns risk and why does it matter?
Sequence of returns risk means the order of returns matters as much as average returns. If you experience a major bear market (20-40% drop) in the first 5-10 years of retirement while withdrawing money, you sell shares at depressed prices,permanently reducing your portfolio's ability to recover. Example: A 30% crash in year 2 while you're withdrawing 4% can reduce your portfolio's ultimate lifespan by 10-15 years compared to the same crash in year 20. Early retirees face more sequence risk due to longer withdrawal periods. Strategies to combat it: bucket strategy, starting with lower stock allocation, guardrail spending cuts, maintaining income optionality.
Should I adjust my withdrawal rate based on market valuations?
Some research suggests yes,using CAPE ratios to adjust safe withdrawal rates. When CAPE is above 30 (like January 2025), historical analysis suggests 3% or lower may be prudent. When CAPE is below 20, 4-4.5% has worked historically. However, this strategy requires either timing retirement to valuations (which could mean never retiring,valuations have been elevated for 15+ years) or accepting very low withdrawal rates. A more practical approach: use 3.5% as baseline regardless of valuations, implement spending guardrails, and maintain income flexibility. This provides safety without requiring market timing.
What are guardrails and how do they improve success rates?
Guardrails are dynamic spending rules that adjust withdrawals based on portfolio performance. Common approach: Start at 4% withdrawal. If portfolio falls below 80% of inflation-adjusted starting value, cut spending 10% (lower guardrail). If portfolio exceeds 130% of starting value, increase spending 10% (upper guardrail). This flexibility dramatically improves outcomes,improving 50-year success rates from ~80% (fixed 4%) to ~95%+ while maintaining quality of life most years. The key: willingness to cut discretionary spending (travel, dining, hobbies) in down markets rather than rigidly maintaining spending as portfolio shrinks.
How much does part-time income improve safe withdrawal rates?
Part-time income massively improves portfolio success rates and allows much smaller portfolios. Example: Need $50K/year. Option A: Build $1.43M, withdraw 3.5% ($50K), no work. Option B: Build $1M, withdraw $35K (3.5%), work part-time earning $15K/year = $50K total income. Option B requires $430K less portfolio (achievable 3-5 years sooner) and reduces sequence of returns risk because you're withdrawing less during vulnerable early retirement years. Even $10K/year income makes enormous difference,dropping required portfolio from $1.43M to $1.14M (20% reduction). Part-time income for just the first 10-15 years of retirement improves outcomes even more than lifetime low withdrawal rates.