Is the 4% withdrawal rule still safe for early retirees in 2026?
I'm 52 and hoping to retire at 55 with about $1.8M in retirement savings (mix of 401(k), IRA, and taxable brokerage). I've been planning around the 4% rule which would give me about $72,000/year.
But I keep reading that 4% might be too aggressive with today's market valuations and longer life expectancies. Some people suggest 3.5% or even 3% for early retirees.
What withdrawal rate do you think is actually safe for someone potentially looking at a 40-year retirement horizon? Should I work a couple more years to build a bigger cushion?
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3 Answers· sorted by votes
Great question! As a CFP, I can tell you the 4% rule (from the Trinity Study) was designed for a 30-year retirement, not 40+. For a 40+ year horizon, I typically recommend our clients plan around 3.25-3.5% initially.
Here's why: the original study used historical US market data (1926-1995) which included periods of very strong returns. Today's CAPE ratio is higher, bond yields are different, and we're looking at longer retirements. Morningstar recently suggested 3.3% as a safe starting rate for a 40-year horizon.
The good news: $1.8M at 3.5% = $63,000/year. With Social Security at 62-70, you'd likely be in good shape. But you might want to consider a dynamic withdrawal strategy rather than a fixed percentage — spend less in down years, more in up years.
The 4% rule is a starting point, not a guarantee. I retired at 53 with a similar nest egg and here's what I actually do:
- Keep 2 years of expenses in cash/bonds (bucket strategy)
- Withdraw from stocks in good years, cash in bad years
- Target about 3.5% average withdrawal
The flexibility is key. Being willing to cut back to 2.5% in a 2008-style crash (rather than selling at the bottom) makes a huge difference in portfolio survival. You're in great shape at $1.8M — just stay flexible.
One thing nobody's mentioned: health insurance before Medicare at 65. If you retire at 55, you have 10 years to bridge. ACA plans can be expensive — budget $800-1,200/month for a decent plan depending on your state.
Your $72k/year (4%) would need to cover that plus everything else. At 3.5% ($63k), things get tight if you have a big health insurance bill. Something to factor in.