New Study Warns the 4% Retirement Rule Is Too Risky— Here's the 'Sweet Spot' Strategy Instead

Tanya Rawat

Fri, July 31, 2026 at 10:30 PM GMT+3 5 min read

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The traditional 4% retirement withdrawal rule may not be the best strategy for maximizing lifetime retirement income, according to research published Wednesday by American Enterprise Institute senior fellow Mark Warshawsky and independent researcher Gaobo Pang.

The study found that combining partial annuitization, where retirees convert part of their savings into a guaranteed income stream while leaving the rest invested, with delaying Social Security generally produced better retirement outcomes than relying solely on the long-standing withdrawal strategy.

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The researchers evaluated four retirement income strategies for a hypothetical 65-year-old with $1 million in retirement savings and about $25,700 in annual Social Security benefits. The analysis factored in taxes, Medicare premiums, investment returns and Social Security claiming decisions before concluding that a mix of guaranteed annuity income and invested assets offered the best balance between income security, flexibility and long-term growth.

The Sweet Spot

"There's significant risk there in terms of outliving your assets," Warshawsky said of the 4% rule. "For people with typical risk aversion, that's too risky."

While fully annuitizing a retirement portfolio can generate higher guaranteed income, retirees also give up liquidity and flexibility, he said. "The sweet spot is basically right smack in the middle," Warshawsky said, referring to a strategy that partially annuitizes retirement savings while leaving the remainder invested.

The researchers also found that retirees who use savings to bridge spending and delay claiming Social Security until age 70 generally improve their lifetime retirement income. "Social Security in its essence is a life annuity," Warshawsky said.

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The Bigger Picture

The findings also align with Morningstar's recent retirement income research, which found retirees may benefit from more flexible withdrawal strategies and delaying Social Security depending on their financial circumstances.

The findings come as retirement planning has become more challenging amid uncertainty over Social Security's long-term finances. Earlier this year, retirement experts cautioned that claiming Social Security benefits early simply because of fears surrounding the trust fund's projected depletion could permanently reduce monthly and lifetime income, while noting that delaying benefits can significantly increase future payouts.

Separately, economists studying options to strengthen Social Security said Congress continues to face difficult tradeoffs between preserving benefits, raising taxes and improving the program's long-term financial health. Their analysis found that different reform proposals produce markedly different outcomes for future retirees and the broader economy, underscoring why retirement planning increasingly requires preparing for multiple scenarios rather than relying on a single source of income.

Image via Shutterstock

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