Retirement experts say you can safely withdraw 3.9% - don't believe them. Here's how you can get much more.

By Brett Arends

You can forget the 4% rule - this strategy can set you up for life

It's more than 30 years since analyst Bill Bengen launched the famous "4% rule" for retirees. Bengen argued that you could safely withdraw that amount from your savings in the first year of retirement, raise the withdrawal amount each year to keep up with inflation, and have a near-certain chance of making your savings last 30 years.

This rule has gone through a lot of debate and revision over the years. It's based on the historic returns from a portfolio of 50% U.S. stocks and 50% U.S. bonds. Morningstar, the personal-finance and mutual-fund analysis firm, has published their latest forecasts, and they think the safe rate today is down a little, to 3.9%.

Read: The guy behind retirement's 4% rule now thinks that's way too low. Here's how much more money you could spend.

"Morningstar's 2025 retirement-income research suggests that 3.9% is the highest safe starting withdrawal rate for retirees seeking a consistent level of inflation-adjusted spending from year to year, assuming a 90% probability of having funds remaining at the end of an assumed 30-year retirement period," the firm wrote. But, it added, you could push your initial withdrawal rate higher - closer even to 6% - so long as you accept that future spending must be "flexible." Or, to put it another way, that if the stock and bond markets go down, your income would have to go down with it.

These calculations are useful and important - essential, even - for those retiring today and in the future. Running out of money is one of the deepest fears of anyone who retires poor or middle class.

But these calculations also should be taken with a big caveat. You can do better - much better - when you retire if you are prepared to put your money into a life income annuity.

Annuities are contracts with life-insurance companies. You give them a pile of money; they give you a fixed income for life, whether you live one week or 50 years. The insurers are heavily regulated at the state level, and policyholders are protected by state guaranty funds up to a certain level that varies by state, but which is usually $300,000 or more.

Annuity rates comfortably beat the 4% rule or 3.9% rule, even if you build in some inflation protection. That's because of so-called mortality credits - which is another way of saying that if you live for 50 years, your future income will be paid out by all those who bought policies and died early.

If I seem to keep writing about annuities, it's because hardly anyone seems to know about them, very few buy them, and yet they are the single best way of squeezing the maximum lifetime income out of a pool of savings. Experts much smarter than me have been grappling since at least 1965 with what they call the "annuity puzzle," meaning the puzzle - their word - that more of us don't put some or all of our retirement savings into annuities.

Right now, a woman who retires at 65 and buys a single premium immediate annuity can collect 7.6% a year for life, according to the latest market data available from annuity marketplace Immediate Annuities. In other words, if she buys a $100,000 annuity, she'll get $7,600 a year, or $633 a month, come rain or shine, until she dies. A man doing the same thing would collect a bit more per year, because the actuarial tables say he isn't likely to live as long.

Let's say that 65-year-old woman was worried about the future effects of inflation and didn't want to lock herself into a fixed monthly payment. She could buy an annuity where the payments go up by, say, 3% every year. And even then, her starting withdrawal rate would work out at 5.6% of her portfolio.

To put this another way, her starting income would be 40% higher than if she followed the 4% rule.

Granted, a 3% annual increase in payments doesn't guarantee you'll outpace inflation - but it comes pretty darn close. The worst-case scenario in the recent past is probably represented by someone who retired at the end of 1969, just before the disastrous, inflationary 1970s and early 1980s. But even then, over the next 30 years, inflation averaged just above 4% (4.1%, to be exact).

Oh, and you can get an annuity at age 65 with a 4% annual increase that starts out with a 5.1% withdrawal rate - meaning that even at the start, your monthly income would be higher than someone following the 4% rule or similar.

And actually, the picture is even better than that. The best annuity you can get is Social Security, which is backed by the full faith and credit of the United States government and which adjusts payments every year to match the official inflation rate. And the best possible Social Security you can get is if you wait until you turn 70 before you start claiming.

Someone who doesn't start claiming until 70 will begin with payouts 24% higher than someone who started claiming at age 67, and 77% higher - yes, really - than someone who started at age 62.

In these circumstances, it makes more sense to spend more of your savings during your 60s, if you have to, in order to delay the start of Social Security. Anyone who does that is simply buying a golden annuity at a favorable rate.

Of course, yes, the Social Security trust fund is due to run out of cash in 2034. Unless Congress acts, benefits would be cut about 20% across the board. But it's highly unlikely Congress would let that happen, or they'd lose their jobs.

More common caveats about life annuities are that when you die, that money is gone - there is nothing left for children or grandchildren - and that when you purchase an annuity, you are allegedly "losing control" of your money. You cease to have a big pile of cash in your account, and instead you have an income for life.

But these contracts only make sense if you need to squeeze the most income out of your savings, and for those in that situation, full "control" over their money is largely illusory. They can't go out and buy a Ferrari, because then they'd have nothing to live on.

In any event, you probably wouldn't annuitize all your money, in case of things like health or spending shocks.

The 4% rule also comes with caveats as well. Someone who follows that rule, or something similar, cannot be certain that their savings will last longer than they do. Morningstar's calculations are based on "a new retiree with a 30-year horizon with a 90% probability of success" - meaning there is a 10% chance of running out of money even if you live only 30 years.

And many more people now live beyond 30 years after retirement than they once did.

In any case, all of those calculations are based on what's happened in the past. It is worth repeating that the past behavior of markets does not show what markets will do in the future, let alone what markets "do" in some kind of generalized eternal present. They show only what markets did during the period studied - so, alas, there are no perfect guarantees.

-Brett Arends

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03-26-26 1109ET