November 7, 2026, 5:01 a.m. ET
Retirement savers love to debate the pros and cons of the 4% rule, one of the most well-known retirement planning principles.
The rule says you should build up retirement savings with this goal: spend 4% of your nest egg in the first year of retirement and plan to spend the same amount, adjusted for inflation, every year after that.
Created in 1994 by financial advisor Bill Bengen, the 4% rule emerged as a simple formula for solving a complex problem: how to finance your retirement.
But the rule doesn’t work for everyone. In fact, researchers have spent years imagining economic scenarios in which the rule might not work for almost everyone.
Here are 5 factors that could cause the 4% rule to fail.
Consulting fees
A retirement saver following the 4% rule with a balanced portfolio of stocks and bonds could expect annual returns of around 8%, based on historical performance.
But what if that saver has a financial advisor who charges a 1% fee per year to manage their savings?
These fees could be in addition to what the saver pays investment companies to manage the mutual funds that hold the savings. Fees on actively managed funds can be as high as 1% or more.
Together, these fees can total up to 2% per year. These costs make it more difficult to comply with the 4% rule.
“If you pay a wealth advisor or fund manager to manage your accounts and they have you invest in high-fee, actively managed accounts, then you lose your returns on both the management fee and the fund’s expense fees,” said Caleb Silver, editor-in-chief of Investopedia.
Bear markets
Bengen designed the 4% rule based on the performance of the stock and bond markets between 1926 and 1976, a period that helped capture the downturns of the 1930s and 1970s.
The rule works, in theory, because it’s a spending rate that preserves your savings even in the worst case scenario, when stocks fall or inflation soars.
But the rule is based on a small sample of economic eras. Research has shown that the 4% rule would not work in many other countries, whose financial markets have not performed as well as ours.
And there is no guarantee that U.S. stock and bond markets will perform as well in the future as they have in the past.
Indeed, Vanguard projects that the U.S. stock market will generate annual returns of between 4.9% and 6.9% over the next 30 years. This is well below the double-digit returns the market has generated in the recent past.
“We’ve had exceptional stock returns,” said Robert Brokamp, senior retirement advisor at The Motley Fool. “To what extent do you expect the United States to repeat in the next 30 to 50 years what it has done in the past?”
Early retirement
The 4% rule is designed to make your money last for up to 30 years in retirement.
But what happens if your retirement lasts more than 30 years?
American workers tend to overestimate how long they work. A study by the Employee Benefit Research Institute reveals a three-year gap between when the typical worker plans to retire (at age 65) and when workers actually retire (at age 62).
Americans also tend to underestimate their lifespan. A 65-year-old woman can expect to live on average about 22 years longer. Life expectancy increases with age. Many of us do not understand this fundamental concept of longevity.
Together, early retirement and a longer life expectancy could derail the 4% rule, as your money may need to last more than 30 years.
“These studies always assume a 30-year retirement,” Brokamp said. “Many, if not most, people retire before age 65, and many live to be 100. Then one might be looking at a 40-year retirement.”
Cognitive decline
Research has shown that financial literacy declines with age.
A retiree with declining financial skills may struggle to make the decisions necessary to follow the 4% rule, such as managing assets and tracking expenses from year to year.
“Am I cognitively equipped to make monthly decisions about which parts of my portfolio to sell? said Doug Ornstein, senior director of guided advice at TIAA Wealth Management.
The challenge of managing money as we age is one reason to consider hiring a professional money manager, Ornstein said — although that decision has its own costs, as mentioned above.
“One of the questions we discuss with many of our clients is: ‘When is it time to hand over the keys to managing our portfolios?’ “, Ornstein said.
Cognitive decline brings a second risk in retirement: the danger of falling prey to a financial scam.
Fraudsters often target older Americans, who have a lot of money and are seen as susceptible to sophisticated cyber scams.
“You read so many stories about seniors, and it’s not just seniors who lose most or all of their nest egg to a scam,” Brokamp said. “I think it’s a very underestimated risk to retirement security.”
Long-term care
One final factor that the 4% rule can’t really cover is the debilitating cost of long-term care.
More than 80% of Americans will need help with daily activities, like dressing or eating, at some point, according to the Center for Retirement Research at Boston College.
The costs of long-term care can be staggering. The average assisted living community charged $6,200 per month in 2025, according to CareScout, while a semi-private room in a nursing home cost $9,581.
The 4% rule assumes a static level of spending from year to year, and that’s not often how retirement works.
Retirees tend to spend a lot of money in the early years, Ornstein said, traveling and completing tasks on their bucket list. They spend less as they slow down. And they spend more in later years, when medical costs and long-term care expenses rise.
“The 4% rule doesn’t really take into account that spending is dynamic,” Ornstein said.
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