The 4% Rule Explained
The 4% rule is the most famous retirement math shortcut ever invented. It's simple, durable, and surprisingly accurate — but it's also widely misunderstood. Here's what it actually says and when to trust it.
Quick answer
The 4% rule says you can withdraw 4% of your starting portfolio in year one of retirement, adjust that dollar amount for inflation each year after, and have at least a 95% chance of not running out of money over 30 years.
Where the 4% rule came from
Financial planner Bill Bengen coined it in 1994 after testing every 30-year retirement period in U.S. market history back to 1926. He found that a 50/50 stock/bond portfolio could survive every one of those periods at a 4% withdrawal rate.
The famous 'Trinity Study' (1998) confirmed Bengen's work and made the rule famous. Both relied on historical U.S. market data, which has been kinder than most global markets.
How to actually apply it
- On day one of retirement, calculate 4% of your portfolio (e.g., $1M × 4% = $40,000).
- Withdraw that $40,000 over year one.
- Each subsequent year, increase the dollar amount by inflation (not 4% of the new portfolio value).
- Continue until age 95 or you run out — whichever comes first.
Start at $1M, take $40K year one. If inflation is 3%, take $41,200 year two — regardless of whether your portfolio went up or down.
What the math actually shows
Across every rolling 30-year period since 1926, the 4% rule survived in roughly 96% of scenarios. The few failures involved retiring at the worst possible time (1929, 1966) — i.e., right before a major bear market.
In most scenarios, the retiree actually ENDED with more money than they started. The 4% rule is conservative — it's built to survive the worst case, not the average case.
Modern critiques and adjustments
Lower rate for early retirees
A 30-year rule doesn't work for someone retiring at 50 with a 45-year horizon. Use 3.25%–3.5% for very early retirees.
Higher rate with flexibility
Bengen himself now suggests 4.7% may be safe if you're willing to cut spending temporarily during bear markets. The 'guardrails' approach lets you withdraw more in good years and less in bad ones.
International data is worse
Studies using global market data (Japan, UK, etc.) suggest 3.0%–3.5% is safer than 4% for portfolios not 100% in U.S. stocks.
What 4% means for your retirement number
Flip the 4% rule and you get the 25× rule: multiply your desired annual spending by 25 to find your retirement target.
- Spend $30K/year → need $750K
- Spend $50K/year → need $1.25M
- Spend $75K/year → need $1.875M
- Spend $100K/year → need $2.5M
Use the calculator
Find your 4% rule number
Project your portfolio at retirement and see your safe annual withdrawal.
Open Compound Interest CalculatorFrequently Asked Questions
Is the 4% rule still valid in 2026?
Yes, with caveats. For a standard 30-year retirement starting at 60–65, it remains a reasonable starting point. Use 3.5% if you retire earlier or want extra margin.
Does the 4% rule include Social Security?
No. The 4% applies to your investment portfolio only. Social Security, pensions, and rental income are additional.
What portfolio mix does the 4% rule assume?
Originally a 50% stocks / 50% bonds split. A 60/40 or even 70/30 mix is generally fine and gives slightly better odds of success.
What if the market crashes the year I retire?
This is 'sequence of returns risk.' If you're flexible — willing to skip an inflation adjustment or cut spending 10–15% temporarily — you can usually survive any market.
Why not just use 5% or 6%?
Higher withdrawal rates failed in too many historical scenarios. At 5%, roughly 1 in 4 retirees ran out. At 6%, more than half did.
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