We find an 81.5% success rate when stocks are rising and inflation is modest. The chances of success plunge if inflation is elevated or markets are soft. The 4% rule is one of the most enduring guidelines for the decumulation phase of retirement. It is also one of the most debated. So my research assistants, Taha Abusaymeh and Anton Siren, and I decided to test this idea—in which savers withdraw 4% of their portfolio in the first year of retirement and then that dollar amount, plus more to account for inflation, each year after.

Our conclusion: The strategy works in more than 80% of cases in our baseline scenario, with the retiree making it to age 95 with money remaining. But the strategy fails far more often in certain circumstances—namely, when there is high inflation, if stocks slump for a decade (as they did during the early 2000s), or when an investor has too conservative an allocation strategy or has advisory fees. To model a theoretical retiree using the 4% rule, we considered a 65-year-old with $1 million in tax-free savings and with the goal of making it to 95 years old with money left over.

The results get particularly interesting—with failure rates as high as 85.4%—when we alter the baseline assumptions. If we assume an inflation rate of 6% (instead of 3%) over the 30-year period, one's probability of making it to 95 with money left in the bank drops to 14.6%. And if the retiree experiences a bad decade of stock returns (like we saw from 2000 to 2009), this drops one's chance of making it to 95 with money remaining to 52.4%. A 1% annual fee on wealth knocked the probability to 61.3%.