What is the 4% rule?

How the 4% rule works

The 4% rule works in two steps: you withdraw 4% of your portfolio's value in your first year of retirement, then raise that dollar amount by the inflation rate every year after. A $1,000,000 portfolio gives $40,000 in year one, and if prices rise 3% that year (an example rate), you'll withdraw $41,200 in year two, whatever the portfolio did. The withdrawal ignores market swings after year one, which makes the rule simple and is also what its critics point to.

Where the 4% rule comes from

The 4% rule comes from financial planner William Bengen's paper "Determining Withdrawal Rates Using Historical Data," published in the Journal of Financial Planning in October 1994. Bengen tested retirements starting each year from 1926 on actual US stock and bond returns and inflation. At 4% with inflation raises, no portfolio ran out before 33 years, and at 3%, none ran out before 50 years.

The Trinity study, published in the AAII Journal in February 1998, ran the same kind of test with a different bond series and five stock and bond mixes. Its tables made the 4% figure widely known.

A portfolio at least half in stocks

The 4% rule needs a portfolio at least half in stocks, and both studies show it failing more often below that line. Bengen advised a stock allocation "as close to 75 percent as possible, and in no cases less than 50 percent."

The rule is often described as a 50/50 rule, but 50% stocks is where the studies' safe range starts, not a fixed mix. If your savings are mostly in bonds or cash, the 4% figure was not tested on a portfolio like yours, so check a lower rate in the calculator section below.

A 30-year retirement

The 4% rule was built for a 30-year retirement, such as one that starts at 65 and runs to 95. A longer retirement needs a lower starting rate, and Trinity's authors wrote that "early retirees who anticipate long payout periods should plan on lower withdrawal rates." The guide to the FIRE movement covers retirements of 40 years or more.

Withdrawals that rise with inflation, before taxes and fees

The 4% rule raises each withdrawal by inflation and treats it as money before taxes and fees. Withdrawals from a traditional IRA or pre-tax 401(k) are taxed as ordinary income, so you'll have less to spend than the 4% you withdraw. Fund fees also lower the return the studies assumed.

Savers setting a retirement target

For savers setting a retirement target, the 4% rule becomes the 25x rule: multiply the yearly spending your portfolio has to cover by 25. The guide to how much you need to retire walks through the full calculation, including Social Security. The same multiple is often called a FIRE number.

Retirees turning savings into income

For retirees turning savings into income, the 4% rule sets a first-year withdrawal and a raise schedule for about 30 years. The Tweed Coast FIRE Calculator lets you change the safe withdrawal rate and see how the target moves.

Why the 4% rule still holds up

The 4% rule still holds up because it was sized to the worst US starting years, not the average ones. Bengen's data includes a retirement that began in 1929, just before the crash, and retirements that began in the late 1960s and early 1970s, ahead of the 1973 to 1974 recession he found did the most damage because it came with high inflation. Trinity's 95% to 98% success rates at 50% to 100% stocks came from a different bond series, so two methods reached the same rate.

Where the 4% rule falls short

The 4% rule falls short in three ways: it rests on US history only, it never adjusts spending to markets, and its own author has since revisited it.

• US history only: both studies used US returns, from one of the strongest markets of the century.
• Fixed spending: the rule raises the withdrawal even after a market fall, while Bengen's paper advises retirees hit by a bad stretch to "reduce withdrawals slightly for a period of time." So plan for a year or two of lower spending after a large market drop.
• A newer version: Bengen revisited the rule in his 2025 book, A Richer Retirement, which sets out how to work out your own maximum withdrawal rate.

Step 1: Add up the savings the 4% rule covers

Add up the savings the 4% rule covers: the stock and bond investments you'll draw from, across your 401(k), IRAs, and taxable brokerage accounts. Leave out cash you won't invest and your home.

Step 2: Take 4% of the total for your first year

Take 4% of the total for your first year, and that is your first-year withdrawal. For a $750,000 portfolio, $750,000 × 4% = $30,000.

Step 3: Raise that amount by inflation every year after

Raise that amount by inflation every year after, using the change in the Consumer Price Index, and don't recalculate it from your balance.³ If the CPI rose 3% over the year (an example rate), $30,000 becomes $30,900.

Once your RMDs start, the required minimum distribution on a traditional account can be larger than your 4% withdrawal. You can reinvest the extra in a taxable account.