You've probably seen the math on a napkin at some point. You take your total retirement nest egg, multiply it by 0.04, and that's what you get to spend every year without running out of money for three decades. It's the "Safe Withdrawal Rate." But here is the thing that trips everyone up: Does the 4 percent rule include Social Security? The short answer is a hard no.
The long answer is that if you treat them as the same thing, you're likely going to live way too frugally or, conversely, mess up your tax strategy. Bill Bengen, the MIT-trained financial planner who actually crunched the numbers back in 1994, wasn't looking at your government check. He was looking at a volatile portfolio of stocks and bonds. He wanted to know how much you could bleed that portfolio during a "worst-case" market sequence—like retiring right before the 1929 crash or the stagflation of the 1970s—without hitting zero.
Why the 4 Percent Rule Ignores Your Government Check
Think of the 4 percent rule as a stress test for your private savings. Social Security is a completely different beast. It’s an inflation-adjusted annuity. It doesn't care if the S&P 500 drops 20% tomorrow.
Because the rule was designed to measure "portfolio longevity," it only cares about the money sitting in your 401(k), IRA, or brokerage account. If you have $1 million saved, the rule says you can pull $40,000 in year one. If you also happen to get $30,000 a year from Social Security, your total spending power is $70,000. You don't subtract the $30,000 from the $40,000.
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Honestly, most people get this backward. They think they need to find a way to "fit" Social Security into that 4% calculation. You don't. You use Social Security to lower the "draw" you need from your investments.
If you need $80,000 a year to live comfortably and Social Security covers $30,000 of that, you only need to bridge a $50,000 gap. In that scenario, you'd actually need a $1.25 million portfolio ($50,000 divided by 0.04) to feel safe, according to Bengen’s logic.
The "Tax Torpedo" and Other Real-World Messes
Here is where it gets kinda complicated. The 4 percent rule is "gross," meaning it doesn't account for the IRS taking their cut. If all your money is in a traditional IRA, that $40,000 withdrawal isn't $40,000 in your pocket. It’s maybe $32,000 after Uncle Sam stops by.
Then comes the "Tax Torpedo." This is a real phenomenon where your Social Security benefits become taxable because your 4% withdrawals pushed your "combined income" over certain thresholds.
- For individuals, if your income is between $25,000 and $34,000, you might pay tax on 50% of your benefits.
- Above $34,000? Up to 85% of your Social Security becomes taxable.
If you are blindly following the 4 percent rule without looking at how it interacts with your Social Security, you might accidentally trigger a much higher effective tax rate than you planned for. It’s a quirk of the American tax code that catches people off guard every single year.
What About the "New" 4 Percent?
Lately, experts like Wade Pfau and the researchers at Morningstar have been arguing that 4% might be too high. Why? Because bond yields have been weird and stock valuations are stretched.
In a 2023 study, Morningstar suggested that a 4.0% starting withdrawal rate is actually okay again, thanks to higher interest rates on cash and bonds. But they emphasize that this assumes a 30-year horizon. If you retire at 55, 4% might be too aggressive. If you retire at 70, it’s probably way too conservative.
Also, the rule assumes you increase your withdrawal every year by the exact rate of inflation. Real humans don't do that. You probably won't spend as much at age 85 as you did at 65. You might spend a ton on travel early on (the "Go-Go" years), slow down in the "Slow-Go" years, and then see a spike in healthcare costs in the "No-Go" years.
Social Security provides a floor for those "No-Go" years that the 4 percent rule just can't guarantee.
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Guyton-Klinger: A More Human Way to Handle the Gap
If the 4 percent rule feels too rigid—and it is—you might look at "Guardrails." Jonathan Guyton and William Klinger developed a system that feels way more natural.
Instead of a fixed percentage, you adjust based on how the market is doing. If your portfolio grows a ton, you give yourself a "raise." If the market tanks, you skip your inflation adjustment for a year.
When you factor in Social Security, these guardrails become even more effective. Since you have that guaranteed government check coming in, you can actually afford to be a bit more aggressive with your portfolio withdrawals when the market is up, knowing your "floor" is protected by Social Security.
Practical Steps to Build Your Strategy
Forget the napkin math for a second. If you want to actually apply this, you need a sequence.
First, calculate your Fixed Floor. This is Social Security plus any pensions or annuities. This is money that hits your account regardless of what Wall Street does.
Second, identify your Gap. Subtract your Fixed Floor from your total desired annual spending.
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Third, apply a withdrawal rate—whether it's 4%, 3.5%, or a dynamic guardrail—to your Investable Assets to see if it covers the Gap.
If your portfolio is $500,000 and your Gap is $30,000, you’re trying to pull 6%. That’s risky. That’s "I might be eating cat food at 85" risky. If your Gap is only $15,000, you’re at 3%. You’re golden. You can probably afford a nicer bottle of wine at dinner.
The Next Move:
Look at your most recent Social Security statement on the SSA.gov website. Take that monthly number, multiply by 12, and subtract it from your target retirement budget. Whatever is left is the amount your portfolio needs to support. Divide that "Gap" number by 0.04 to find your target "Number." If your current savings are below that, you either need to work longer, spend less, or delay Social Security to age 70 to increase your "Fixed Floor."
Deciding when to take Social Security is actually the biggest lever you have. Delaying from age 62 to 70 increases your check by about 8% for every year you wait. That’s a "guaranteed return" no stock market can promise. By increasing that Social Security floor, you take the pressure off the 4 percent rule entirely.