For years, the “4% rule” has been a go-to guideline for retirees looking to draw income from their savings. The concept is simple: withdraw 4% of your retirement portfolio in the first year, adjust for inflation each year after, and you’ll likely have enough money to last 30 years. But as economic conditions have changed—interest rates staying low, markets becoming more volatile, and life expectancy increasing—this once-reliable rule is starting to show its cracks. In fact, many experts now believe that a safer withdrawal rate might be closer to 3%.

At the heart of this issue lies something called sequence of returns risk. This is the danger that poor market performance early in retirement can permanently damage a portfolio, especially when you’re simultaneously withdrawing income. Even if the market eventually recovers, the combination of early losses and regular withdrawals can make it very difficult to bounce back. In other words, the order of your investment returns matters just as much—if not more—than the average return over time.

This makes the traditional 4% rule less reliable in today’s environment. Low interest rates mean bonds, a staple of conservative retirement portfolios, generate less income. At the same time, stock market valuations are high, which often predicts lower future returns. Combine that with inflation and rising healthcare costs, and it’s clear that retirees face more headwinds than ever before. Following a rigid 4% strategy without adapting to market conditions could increase your chances of running out of money.

So what’s the alternative?

Some retirees also build their income plan around guaranteed sources—such as Social Security, pensions, or annuities—to cover essential expenses. This provides stability even if market-based withdrawals are temporarily reduced. The remaining portfolio can then be used more flexibly for discretionary spending, with less pressure to sell investments during down markets.

Ultimately, relying solely on a traditional withdrawal strategy is risky because of the uncertainty around how markets will perform over time. Market downturns, especially early in retirement, can significantly impact your portfolio’s longevity. In contrast, a retirement plan that includes guaranteed lifetime income provides a more stable and worry-free foundation. It helps eliminate the risk of running out of money—something that many retirees fear most. Financial products that create personal pensions, such as certain types of annuities, can offer significantly higher sustainable withdrawal rates than the often-cited 3% guideline—sometimes even doubling it—while also removing the stress of managing market fluctuations. By incorporating guaranteed income into your strategy, you can gain greater confidence and flexibility throughout retirement.