Suze Orman: Why the 4% Rule No Longer Works for Today’s Retirees

A lot of people reach retirement age without much money in savings. But if you worked hard and saved well, you may be in a very different position. And if you’re retiring with a respectable nest egg, it’s important to know how to manage it.

Many financial experts recommend using a strategy called the 4% rule. The rule has you withdrawing 4% of your savings balance your first year of retirement and adjusting future withdrawals for inflation.

It’s a strategy that, if all goes well, should be conducive to having your savings last for 30 years. But while a lot of financial insiders are fans of the 4% rule, Suze Orman is not.

Orman thinks the 4% rule no longer works for today’s retirees and recommends a different approach to managing savings.

Why Orman thinks the 4% rule is a problem

The 4% rule makes a number of assumptions that could render it less effective. It assumes a fairly even mix of stocks and bonds and certain market conditions. Orman thinks markets are unpredictable, interest rates aren’t what they were back when the 4% rule was established, and Americans are living longer. This combination makes the 4% rule a bit dangerous, in her opinion.

Orman therefore recommends starting with a 3% withdrawal rate, or even less, depending on how your portfolio is invested. For a retiree with $1 million in savings, this represents a drop from $40,000 to $30,000 in annual portfolio income—a significant gap that requires modern strategic planning to bridge.

Modern strategies to cope with smaller withdrawals

One of the biggest fears you might have in retirement is that your money will eventually run out. To avoid this without sacrificing your quality of life, you can utilize new legislative and technical strategies.

Utilize SECURE 2.0 “Super Catch-Ups”

Orman recommends working longer to boost your nest egg. Under current tax laws, this is more effective than ever. The SECURE Act 2.0 now allows individuals aged 60 through 63 to make “super catch-up” contributions to their employer-sponsored plans. For 2025 and 2026, this allows for significantly higher tax-advantaged savings right before you cross the finish line, making those extra working years much more impactful.

Implement Dynamic Guardrails

Rather than sticking to a rigid 3% or 4% rate, many experts now suggest “Dynamic Guardrails.” This approach allows you to increase your withdrawal rate when markets are performing well but requires a pre-planned “belt-tightening” reduction if the portfolio drops below a specific floor. This flexibility often allows for a higher initial withdrawal than the strict 3% Orman suggests while maintaining safety.

Beware the IRMAA Surcharge

A major hidden threat to retirement income is the Income Related Monthly Adjustment Amount (IRMAA). If your withdrawals push your Modified Adjusted Gross Income over certain thresholds, your Medicare Part B and Part D premiums can skyrocket. Strategic withdrawal planning isn’t just about the percentage you take out; it’s about staying under these tax and surcharge brackets to preserve your cash flow.

Income Layering and Synthetic Dividends

Modern retirees are also moving toward “income layering.” This involves using a mix of Social Security, bond ladders, and options-based strategies—sometimes called synthetic dividends—to create a consistent floor of income. By generating cash flow through covered calls or other conservative strategies, you can meet your income needs without being forced to sell shares during a market downturn.

Maximizing Social Security

Orman remains a firm advocate of delaying Social Security until age 70. If your full retirement age is 67 and you wait until 70 to sign up, you boost your monthly payments by 24% permanently. This guaranteed, inflation-adjusted income is the ultimate hedge against a lower portfolio withdrawal rate.

It’s always a good idea to talk to a financial advisor about your specific situation. They can look at your portfolio makeup, your income needs, and current market conditions to help you design a tiered income plan that keeps your principal safe.

Editor’s Note: This article was updated to include information regarding SECURE Act 2.0 super catch-up provisions for retirees aged 60 to 63, the implementation of dynamic withdrawal guardrails, the impact of Medicare IRMAA surcharges on retirement cash flow, and the use of income layering and options-based strategies to supplement traditional portfolio withdrawals.