When it comes to retirement, some longstanding rules of thumb have become deeply embedded in how Americans plan for their financial future. Finance expert Suze Orman has a pointed warning about one of the most popular. She has urged retirees to stop following the 4% rule entirely, saying “I would not be using the 4% figure on any level.”
So what is the 4% rule, why is Orman pushing back against it so forcefully, and should you take her advice? Here is what you need to know.
What is the 4% rule?
The 4% rule is a straightforward guideline designed to help retirees choose a safe annual withdrawal rate. Under the rule, a retiree can safely withdraw an inflation-adjusted 4% of their investments each year during a 30-year retirement. Using a $1 million nest egg as an example, that translates to $40,000 in year one, with the dollar amount adjusted upward each year to keep pace with inflation.
In October 1994, financial planner William Bengen published his findings in the Journal of Financial Planning, and what is now known as the 4% withdrawal rule was born. The original math actually came out to 4.15%, but the number was rounded down in publication, and the round figure stuck. Bengen’s goal was to give retirees a concrete, historically grounded benchmark so they could plan withdrawals without the fear of running dry too early.
What’s Orman’s problem with the 4% rule?
Orman’s core objection is that a fixed withdrawal percentage encourages retirees to take money out whether they need it or not. “It doesn’t work anymore. I think it’s very dangerous,” Orman said in a 2024 interview. She suggests scaling back to a 3% withdrawal rate, or even less.
“Maybe you were taking out 4% and 4% even though you didn’t need it,” she said. One day, a retiree may need expensive long-term care but find that the account has been depleted by years of unnecessary distributions taken simply to follow a rule of thumb.
“The more you cannot take out of a retirement account, the better you are,” she explained, pointing to the uncertain economic landscape retirees face today. Her reasoning: markets are unpredictable, inflation chips away at purchasing power, and people are living longer than ever. This combination creates a perfect storm for retirees relying on outdated withdrawal strategies.
The 2026 retirement reality check
The macroeconomic backdrop has shifted considerably since Bengen first ran his numbers on 1926-to-1994 market data. The right safe starting withdrawal rate depends on equity valuations, bond yields, prospects for inflation, and a retiree’s own life expectancy and asset allocation. 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, assuming a 90% probability of having funds remaining at the end of a 30-year retirement period.
Bengen himself later updated his findings based on further research to suggest 4.7% as the safe withdrawal rate in one’s first year of retirement. Bengen calls that 4.7% rate “Universal Safemax,” the historical maximum safe withdrawal rate for all retirees. Retirees who use a 4.7% withdrawal rate may be sacrificing on average about 35% per year in withdrawals, which he calls “a considerable reduction in lifestyle.” The gap between these figures underscores the core problem with the classic formula: it treats a fluid economic environment as a rigid calculation.
Orman’s playbook: the 3-to-5-year cash reserve
Beyond questioning the withdrawal percentage itself, Orman advocates for a defense strategy built around cash. The framework centers on maintaining three to five years of baseline living expenses in liquid, high-yield savings instruments or short-term vehicles. During a market downturn, retirees draw from this cash reserve rather than liquidating equity positions at depressed prices. The approach directly addresses sequence-of-returns risk, which is the danger that poor market returns in the first years of retirement can permanently impair a portfolio’s recovery, even if markets rebound strongly afterward.
If the early years of retirement coincide with market downturns, retirees may be forced to withdraw from portfolios that are temporarily depressed. That combination of withdrawals and losses can permanently reduce a portfolio’s recovery potential, even if markets rebound later. A substantial cash buffer breaks that chain of dependency.
Dynamic spending: smarter alternatives to a rigid rule
Rather than locking into a fixed annual percentage, modern wealth management increasingly points toward flexible frameworks that adjust spending based on portfolio performance and personal circumstances.
The Guardrails Strategy: This approach sets a spending ceiling and a floor. Retirees begin at a higher initial withdrawal target, often above 5%, but agree in advance to trim spending by 5% to 10% if the portfolio falls below a predetermined threshold. Morningstar’s specific implementation includes a starting safe withdrawal rate of 5.2% for a portfolio of 40% equity and 60% bonds.
The Social Security bridge: This method draws more heavily from retirement accounts in the early years of retirement, using those funds as a temporary income bridge. The payoff comes later: by delaying Social Security claims until age 70, retirees lock in higher monthly payments that are guaranteed and inflation-adjusted, which reduces the long-term burden on the investment portfolio.
Is Orman right?
On the central point, Orman has it right. Withdrawing 4% by default when you don’t need the money is a shortsighted approach, and preserving retirement savings almost always serves retirees better than spending them down prematurely.
There are also structural problems with the 4% rule that go beyond Orman’s concern about unnecessary withdrawals. According to the CDC, life expectancy for the U.S. population reached 79.0 years in 2024, an all-time high. Orman’s recommendation is to assume you will live until at least age 95. If you are in excellent health and have a family history of long-lived parents and grandparents, her advice is to base your withdrawal strategy on your money lasting until you are 100. A rule calibrated to a 30-year retirement may fall short if you live into your late 90s.
Morningstar research suggests that retirees in 2026 could start with a withdrawal rate of 3.9% and, adjusting for inflation, continue through a 30-year retirement without running out of money. This base-case safe withdrawal rate is up from 3.7% in 2025, and applies to portfolios that hold between 30% and 50% in equities with the remainder in bonds and cash. A more conservative starting point gives retirees a larger margin for unexpected expenses, healthcare costs, and market volatility.
The right withdrawal rate is personal. It depends on your total portfolio size, risk tolerance, estimated life expectancy, and whether you are subject to Required Minimum Distributions. Under current law, the RMD age is 73 for those born between 1951 and 1959, or 75 for those born in 1960 or later. These mandatory withdrawals from tax-advantaged accounts can complicate a carefully planned drawdown strategy, making it even more important to have a plan tailored to your specific situation rather than a generic rule.
Working with a qualified financial advisor to determine the right withdrawal rate for your circumstances is likely the most valuable step you can take. Orman’s advice to abandon the 4% rule as a one-size-fits-all answer and instead build a withdrawal plan grounded in your actual financial picture is sound guidance worth taking seriously.
Editor’s note: This article has been updated to reflect Morningstar’s current 2026 base-case safe withdrawal rate of 3.9% (revised upward from the previously cited 3.7%), Suze Orman’s specific recommendation of 3% or less as a safer alternative, CDC data showing U.S. life expectancy reached 79.0 years in 2024, Bengen’s “Universal Safemax” figure of 4.7%, and updated RMD starting ages under SECURE 2.0 (age 73 for those born 1951-1959, age 75 for those born in 1960 or later).
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