Published: December 3, 2025
If you retired planning to “just follow the 4% rule,” today’s headlines should make you sit up.
Vanguard’s latest capital markets outlook projects that U.S. stocks may return only about 2.8%–4.8% a year over the next decade, while high‑quality bonds are expected to earn around 4.3%–5.3% annually.
At the same time, a MarketWatch column published this morning warns that a “lost decade” of low stock returns could be devastating for retirees who keep withdrawing a fixed 4% a year regardless of market conditions. MarketWatch+1
Layer on the demographic reality: about 11,400 Americans are turning 65 every single day in 2025, the peak of the baby‑boomer retirement wave.
Put it all together, and the message is clear: the old 4% rule is under more pressure than ever.
What Vanguard Is Actually Saying About the Next 10 Years
Vanguard’s 2025 Economic and Market Outlook and related commentaries sketch a world that looks very different from the roaring U.S. stock markets of the 2010s and early 2020s.
1. U.S. stocks: lower returns, higher valuations
In its latest 10‑year projections, Vanguard estimates:
- U.S. equities: ~2.8%–4.8% annualized (nominal)
- Non‑U.S. developed equities: ~7.3%–9.3%
- Emerging‑market equities: ~5.2%–7.2%
In other words, U.S. stocks are projected to trail both bonds and international stocks over the coming decade — the reverse of what many retirees have experienced for most of their investing lives. Vanguard links this to stretched valuations in large‑cap U.S. growth and technology names, and to the risk that today’s AI‑driven “exuberance” won’t fully translate into shareholder returns. Vanguard+1
2. Bonds and “sound money” are back
The same outlook is much more upbeat on fixed income. With interest rates expected to stay structurally higher than in the 2010s, Vanguard forecasts about 4.3%–5.3% annualized returns for both U.S. and global (hedged) bonds over the next decade.
That means a balanced portfolio may no longer be carried by equities, and the traditional “stocks for growth, bonds for safety” story tilts more toward “bonds for growth and safety, stocks for selective upside.”
3. Volatility ahead — especially for U.S. growth stocks
Vanguard’s November 2025 “AI exuberance” update highlights a paradox: AI investment could boost economic growth, but U.S. growth stocks may still disappoint because expectations are already sky‑high and competition in tech is brutal. Vanguard+1
Their base case: U.S. stock returns of roughly 4%–5% a year over the next 5–10 years, with higher volatility than investors grew used to in the past decade.
For a 35‑year‑old, that’s a shrug‑and‑move‑on outlook. For a 65‑year‑old who just stopped working, it’s a direct threat to their withdrawal strategy.
A Quick Refresher: What the 4% Rule Was Designed to Do
The 4% rule dates back to the 1990s, when financial planner Bill Bengen studied U.S. market history and looked for a withdrawal rate that would have survived even the ugliest 30‑year periods (think Great Depression + stagflation combos). His conclusion:
Start by withdrawing 4% of your portfolio in year one, then increase that dollar amount each year with inflation, and your portfolio should last 30 years.
Key assumptions baked into that rule:
- A 30‑year retirement horizon
- A balanced portfolio (roughly 50–75% stocks, rest bonds)
- U.S. 20th‑century market returns, which included some very strong decades
- No change in withdrawals beyond yearly inflation adjustments
Modern research has steadily chipped away at that 4% figure. Morningstar’s retirement income team, for example, found that 3.3% was a safer starting withdrawal for new retirees in 2021, later updating that guideline to 3.7% in light of higher interest rates and changing valuations.
And their new “State of Retirement Income for 2026” suggests a base‑case safe rate of about 3.9%, conditional on portfolio mix and spending flexibility — still below the classic 4%. Morningstar+2Morningstar+2
So the 4% rule was never a promise; it was a historically grounded starting point. Vanguard’s new forecasts just make that starting point look even more optimistic.
The Real Villain: Sequence‑of‑Returns Risk
One of the most important points raised in today’s MarketWatch column is that average returns don’t tell retirees the whole story. The sequence of returns — when good or bad years happen — matters just as much.
Retirement researcher Wade Pfau has written extensively about this “sequence‑of‑returns risk.” In plain English:
- If markets do badly right after you retire, you’re forced to sell more shares at low prices to fund the same spending.
- That permanently shrinks your portfolio. Even if markets roar back later, there’s less capital left to benefit.
- The result: a higher chance of running out of money, even if the average return across 30 years looks fine.
A simple example
To see why this matters, imagine two retirees:
- Both start with $1,000,000.
- Both withdraw 4% ($40,000) in year one and then increase that amount by 2% inflation each year.
- Both earn an average return of 6% per year over 30 years.
But:
- Retiree A earns +6% every single year.
- Retiree B earns 0% for the first 10 years and about 9% for the next 20 (still averaging 6%).
If you run the math, Retiree A ends 30 years with around $1.6 million left. Retiree B — despite that same 6% average — is almost wiped out, finishing with tens of thousands, not millions.
That’s sequence risk in action. And it’s exactly the scenario that looms large when a major asset manager like Vanguard is warning that the next decade for U.S. stocks could be unusually weak.
Peak 65: More Retirees, More Exposure
The timing could hardly be worse. The U.S. has entered the so‑called “Peak 65” zone:
- Roughly 4.1 million Americans a year are turning 65 from 2024 through 2027.
- That works out to about 11,000–11,400 new 65‑year‑olds per day.
Many of these new retirees are living longer — two or three more decades is common — and a troubling share have relatively modest savings.
If Vanguard is roughly right and the first decade of their retirement delivers lower stock returns and higher volatility, a lot of people depending on a rigid 4% rule could discover that their money doesn’t stretch as far as planned.
Today’s Headlines: A Fractured Response to the 4% Rule
December 2–3, 2025 has turned into something of a 4% rule news day. Beyond the MarketWatch warning, other outlets are offering very different prescriptions:
1. “Forget the 4% Rule — You Can Do Better” (if you accept more risk)
A 24/7 Wall St. piece argues that with a stock‑heavy portfolio, retirees might safely target 6% withdrawals instead of 4%, provided they hold at least two years of expenses in cash as a buffer during downturns.
That approach leans into growth: more stocks, higher expected returns, but also bigger drawdowns and higher sequence risk if the bad years hit early.
2. “Sleep‑Well‑At‑Night” Dividend Income
Another 24/7 Wall St. article published today focuses on a “Sleep Well at Night” dividend strategy, built around companies that have increased their dividends for decades — think Coca‑Cola, PepsiCo, Procter & Gamble, and dividend‑focused ETFs. 24/7 Wall St.
The pitch: focus on stable, rising income streams rather than day‑to‑day price moves, so retirees can ignore volatility and live off dividends.
Reality check: dividend stocks are still stocks; they can and do fall. But a well‑built dividend portfolio can provide more psychological comfort and reasonably steady cash flows.
3. Boomers ditching the 4% rule for the “bucket strategy”
A widely shared Moneywise story, syndicated on Yahoo and AOL today, highlights baby boomers who are abandoning the 4% rule in favor of a “bucket strategy.” AOL+2AOL+2
In a bucket strategy, your assets are divided by time horizon:
- Bucket 1: Cash and short‑term bonds for the next 2–5 years of spending
- Bucket 2: Intermediate‑term bonds and conservative funds for years 5–10
- Bucket 3: Long‑term growth assets (equities, maybe real assets) for year 10+
The goal is to avoid selling stocks in bad years by drawing from safer buckets when markets are down — a direct way to fight sequence‑of‑returns risk.
So…Is the 4% Rule “Dead”?
Not exactly. But it is being heavily re‑interpreted.
Recent academic and industry research tends to agree on a few points:
- A rigid 4% plus inflation forever is aggressive for new retirees, especially in a world of lower expected returns and longer lifespans.
- 3%–3.5% looks closer to a conservative “set it and forget it” starting point for many 30‑year retirement plans, depending on asset allocation.
- Flexible withdrawal strategies (spending more after great years, tightening the belt after bad years) can often support higher lifetime withdrawals than a fixed 4% rule.
Add Vanguard’s forecast — U.S. stocks returning only 2.8%–4.8% nominal, maybe near 0% real after inflation — and a strict 4% rule starts to look like a bet that history will be kinder than the next 10 years are currently expected to be.
A Practical Playbook for Retirees in a Low‑Return World
This isn’t a time for panic, but it is a time for recalibration. Here are concrete steps retirees and near‑retirees can consider in light of today’s news.
This is general information, not personal financial advice. Talk to a qualified adviser before making big changes.
1. Re‑estimate your safe withdrawal rate
Instead of assuming 4% is fine:
- If you’re just retiring and planning for 30+ years, consider stress‑testing 3%–3.5% as your baseline “always OK” rate.
- Use 4% as a ceiling, not an automatic entitlement — something you only approach when markets and your portfolio are both in good shape.
Morningstar’s most recent analysis suggests around 3.9% is a reasonable starting point on average, but that assumes specific portfolio mixes and that you’re willing to adjust along the way.
2. Shift from a rule to a system: guardrails and flexibility
Static rules ignore real life. Dynamic “guardrail” strategies — pioneered by Jonathan Guyton and William Klinger and expanded in later research — adjust spending when your withdrawal rate drifts too high or too low relative to your portfolio. The Institute of Financial Wellness+4white…
In practice, that can mean:
- Give yourself a raise after several very strong years.
- Cut spending 5%–10% (for a few years) after big market drops instead of pretending nothing happened.
This kind of flexible system directly addresses sequence‑of‑returns risk by making your withdrawals respond to portfolio health.
3. Embrace the bucket strategy (but build it properly)
A well‑designed bucket strategy can make Vanguard’s low‑return world less frightening:
- Keep 2–5 years of withdrawals in cash and short‑term bonds (Bucket 1).
- Invest the next 5–10 years in intermediate‑term bonds and conservative funds (Bucket 2).
- Put the rest in a diversified mix of global stocks and possibly real assets (Bucket 3).
In bad years, you tap Bucket 1 and 2 while giving Bucket 3 time to recover. In good years, you refill your near‑term buckets from equity gains.
This doesn’t magically raise returns, but it reduces the odds of selling stocks at terrible prices, which is exactly what derails retirement plans in a “lost decade” scenario. AOL+2SSRN+2
4. Rethink your stock/bond mix in light of new forecasts
If bonds are truly expected to return 4.3%–5.3% over the next decade, while U.S. stocks may only return 2.8%–4.8%, the case for a classic 60/40 portfolio (or even more bonds) gets stronger.
Consider:
- Ensuring at least 20%–40% of equities are in non‑U.S. markets, where valuations and expected returns are arguably more attractive.
- Keeping enough in bonds to cover a decade of expected withdrawals plus a margin of safety, especially for those already retired.
5. Evaluate guaranteed income: annuities and pensions
With more than 11,000 Americans turning 65 each day, interest in annuities has surged, and U.S. annuity sales hit a record $434.1 billion in 2024 before easing slightly in 2025.
Modern research — including work by Wade Pfau on contingent deferred annuities — highlights how pooling longevity risk through lifetime income products can reduce sequence‑of‑returns risk and allow more confident spending from the remaining portfolio.
Annuities are complex and not right for everyone, but for some retirees, using part of the portfolio to buy a guaranteed income floor can make the rest of the plan more resilient in a low‑return world.
6. Don’t forget the boring levers: work, taxes, and spending
Sometimes the safest “withdrawal strategy” isn’t about markets at all:
- Working 2–3 more years or part‑time can dramatically shrink the number of years your portfolio must support you.
- Coordinated tax planning (Roth conversions, smart order of withdrawals, tax‑efficient investing) can boost after‑tax withdrawal power without chasing higher market returns.
- Right‑sizing housing, debt, and big discretionary expenses in your 60s can make a reduced safe withdrawal rate feel much less painful.
Who Can Still Probably Use 4% — and Who Probably Can’t
Every situation is unique, but Vanguard’s forecast and current research suggest some broad categories.
You might still be okay with something close to 4% if:
- You have shorter horizon (for example, you’re 75 and in average health).
- You have other strong income sources (pension, generous Social Security, annuities) and withdrawals from your portfolio are relatively small.
- You’re willing to cut spending meaningfully after a prolonged bear market instead of insisting on fixed income for life.
You should treat 4% as a red flag (and consider 3%–3.5% instead) if:
- You’re early in retirement (mid‑60s or younger) and could reasonably live 30+ more years.
- Most of your retirement income has to come from your portfolio, not pensions.
- Your investments are heavily concentrated in U.S. large‑cap growth with little global diversification.
The Bottom Line for December 3, 2025
Today’s MarketWatch warning about the 4% rule isn’t clickbait. It reflects a genuine collision between:
- Vanguard’s subdued 10‑year outlook for U.S. stocks,
- A historic wave of Americans hitting retirement age, and
- New research showing that “safe” withdrawal rates are probably lower and more nuanced than a flat 4%.
The 4% rule did its job: it gave generations of savers a concrete, simple target. But in a world where bonds may out‑earn U.S. stocks and more than 11,000 Americans turn 65 every day, simplicity is no longer the same as safety.
You don’t necessarily need to abandon the 4% rule — but you almost certainly need to update it:
- Treat it as a rough upper bound, not a guarantee.
- Add guardrails, buckets, and flexibility so your spending adapts to reality.
- Re‑align your portfolio to reflect today’s expected returns, not yesterday’s.
And above all, remember: the risk isn’t that you’re “only” withdrawing 3.5% instead of 4%. The risk is running out of money in your 80s or 90s. Being slightly conservative today is often the cheapest insurance you can buy against that future.
