Morningstar published its sixth annual State of Retirement Income study late last year, and for 2026 the firm raised its base-case safe starting withdrawal rate to 3.9%, up from 3.7% in 2025. The figure assumes a balanced portfolio holding 30% to 50% equities, a 30-year retirement horizon, and a 90% probability that the retiree will not run out of money. The headline number is still below the classic 4% rule popularized by William Bengen in the 1990s — but the gap is closing as bond yields stay elevated.
What Actually Changed
The 0.2-point bump comes almost entirely from improved capital markets assumptions. Morningstar's analysts raised their forward return estimates for fixed income on the back of higher starting yields, which is the single biggest input into a sustainable spending calculation. Equity return assumptions did not move materially, and notably, the research confirms that adding more stocks does not lift the safe starting rate in the base case — the higher volatility cuts into the worst-case outcomes that the 90% confidence band is built around.
For retirees on a $1 million nest egg, the practical difference between the 2025 and 2026 numbers is roughly $2,000 of additional first-year spending — modest, but meaningful when compounded across a multi-decade retirement and the inflation adjustments that follow.
The Base Case Versus the Flexible Strategies
The 3.9% figure assumes the most conservative withdrawal method: a fixed real dollar amount that adjusts upward each year for inflation regardless of how the portfolio performs. Morningstar's research shows that retirees willing to flex their spending can support a meaningfully higher starting rate:
- Forgo inflation adjustments after down years — small uplift in starting rate
- Required minimum distribution method — payout scales with portfolio value and life expectancy
- Guardrails approach — raise or trim spending when the withdrawal percentage drifts above or below preset thresholds
- Constant percentage / endowment method — supports a starting rate up to 5.7%, but accepts that spending in dollars will fall during bear markets
The trade-off is straightforward: more flexibility, more variable income.
Why Sequence Risk Still Drives Outcomes
Morningstar reiterates a finding that has held up across every edition of the study: retirees who hit a stretch of weak returns in the first five years and do not throttle spending are dramatically more likely to deplete the portfolio. Sequence-of-returns risk is not symmetric with average returns — the order in which gains and losses arrive matters more than the average itself for someone actively drawing down.
This is why the firm's flexible strategies all share one feature: a mechanism to spend less when the portfolio is shrinking. It's also why retirement researchers increasingly recommend pairing a flexible withdrawal rule with a cash or short-bond buffer that lets a retiree avoid selling equities during a drawdown.
Practical Takeaways
- Treat 3.9% as a planning starting point, not a maximum. The number assumes a 30-year horizon — shorter retirements can support more.
- Match the rule to your portfolio. The 3.9% figure is calibrated for a 30–50% equity allocation, not a 100% stock or 100% bond portfolio.
- Build in flexibility before you need it. A pre-committed guardrail rule is easier to follow than an emergency mid-bear-market cut.
- Re-run the number when conditions shift. Morningstar updates its safe withdrawal rate annually, and the figure has swung from 3.3% in 2021 to 3.9% today as rates moved.
- Don't forget the tax layer. A 3.9% withdrawal from a traditional IRA is not the same as 3.9% from a Roth — the after-tax dollar amount that hits your bank account differs.
The 4% rule remains a useful shorthand, but Morningstar's annual research is a reminder that the safe rate is not a constant. For investors building a retirement income plan in 2026, 3.9% is the current best estimate of how aggressive a rigid withdrawal plan can be — and how much more headroom a flexible one earns you.
Sources: Morningstar, Financial Advisor Magazine, ZeroHedge Personal Finance, Keil Financial Partners