Retirement savers love to debate the merits and pitfalls of the 4% rule, one of the best-known principles in retirement planning.
The rule says you should amass 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 adviser Bill Bengen, the 4% rule caught on as a simple formula to solve a complex problem: how to fund your retirement.
But the rule doesn’t work for everyone. In fact, researchers have spent years dreaming up economic scenarios in which the rule might not work for almost anyone.
Here are 5 factors that could spell failure for the 4% rule.
Advisory fees
A retirement saver who follows the 4% rule with
a balanced portfolio of stocks and bonds might assume annual returns of about 8%, based on historic performance.
But what if that saver has a financial adviser who charges a fee of 1% a year to manage the savings?
That fee might come on top of whatever the saver is paying investment companies to manage the mutual funds that hold the savings. Fees on actively managed funds can range up to 1% or higher.
Together, those fees can add up to 2% a year. Those costs make it harder to follow the 4% rule.
“If you are paying a wealth adviser or money manager to manage your accounts, and they have you invested in actively managed, high-fee accounts, then you’re losing your returns to both the management fee and the expense fees for the fund,” said Caleb Silver, editor in chief of Investopedia.
Bear markets
Bengen designed the 4% rule based on how the stock and bond markets performed between 1926 and 1976, a span that captured downturns in the 1930s and 1970s.
The rule works, in theory, because it’s a rate of spending that preserves your savings even in a worst-case scenario, when stocks sink or inflation soars.
But the rule is based on a small sample size of economic eras. Research has shown that the 4% rule wouldn’t work in many other countries, whose financial markets haven’t performed as well as ours.
And there’s no guarantee America’s stock and bond markets will perform as well in the future as they have in the past.
Indeed, Vanguard projects the U.S. stock market will yield annual returns between 4.9% and 6.9% over the next 30 years. That’s well below the double-digit returns the market has delivered in the recent past.
“We have had exceptional stock market returns,” said Robert Brokamp, a senior retirement adviser at The Motley Fool. “How much are you banking on the United States repeating for the next 30 to 50 years what it’s done in the past?”
Early retirement
The 4% rule is designed to make your money last through 30 years of retirement.
But what if your retirement lasts longer than 30 years?
American workers tend to overestimate how long they will work. Research by the Employee Benefit Research Institute finds a three-year gap between when the typical worker plans to retire (at 65) and when workers actually retire (at 62).
Americans also tend to underestimate how long they will live. A woman of 65 can expect to live about 22 more years, on average. Life expectancy rises with age. Many of us don’t understand that basic concept of longevity.
Together, early retirement and longer lifespans could derail the 4% rule, because your money may have to last longer than 30 years.
“These studies are always assuming a 30-year retirement,” Brokamp said. “Many, if not most, people retire before age 65, and many live to 100. Then you could be looking at a 40-year retirement.”
Cognitive decline
Research has shown financial literacy diminishes as we age.
A retiree with declining financial skills may struggle with the decisions necessary to follow the 4% rule, such as managing assets and tracking year-to-year spending.
“Am I cognitively equipped to make monthly decisions about what portions 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 comes with its own costs, as mentioned above.
“One of the questions we talk about with a lot of our clients is, ‘When is the time to hand over the keys of managing our portfolios?’” Ornstein said.
Cognitive decline brings a second retirement risk: The danger of falling prey to a financial scam.
Scammers often target older Americans, who are sitting on a lot of money and perceived as susceptible to sophisticated cyber-scams.
“You read so many stories about older people, and it’s not just older people, who lose most or all of their nest egg to a scam,” Brokamp said. “I think it is a very underrated risk to retirement security.”
Long-term care
A final factor that the 4% rule can’t really cover is the debilitating expense of long-term care.
More than 80% of Americans will need help with everyday activities, like dressing or eating, at some point, according to the Center for Retirement Research at Boston College.
Long-term care costs can be staggering. The average assisted living community charged $6,200 a 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 big in the early years, Ornstein said, traveling and fulfilling bucket-list items. They spend less as they slow down. And they spend more in the final years, when medical costs and long-term care expenses mount.
“The 4% rule doesn’t really account for the reality that spending is dynamic,” Ornstein said.
This article originally appeared on USA TODAY: Here are 5 factors that could derail the 4% rule in retirement
