The 4% Rule Explained

A plain-English guide to the most common retirement withdrawal rule

The 4% rule is the single most-cited number in retirement planning, and it's the default our retirement calculator uses. But most people who repeat it don't know where it comes from, what it actually assumes, or when it stops being a good idea. Here's the short version.

Where the number comes from

In 1994, financial planner William Bengen studied historical U.S. market returns going back to 1926 and asked a simple question: if a retiree withdrew a fixed percentage of their portfolio in year one, then adjusted that dollar amount for inflation every year after, what was the highest percentage that would have survived every 30-year period in history without running out of money? The answer he landed on was close to 4%.

The idea was popularized further by the "Trinity Study" in 1998, which tested different withdrawal rates and portfolio mixes of stocks and bonds, and found that a 4% rate had a very high historical success rate over 30-year periods.

How to use it

The math runs in reverse of how it sounds. Instead of asking "what can I withdraw," flip it around to size your goal: divide your annual expenses by your chosen withdrawal rate.

This is exactly the calculation our calculator runs, using your monthly expenses instead of annual ones.

Why some people use a lower rate

Bengen's original research was based on a 30-year retirement, starting around age 65. If you're planning to retire early — say, at 40 or 45 — your money needs to last 50 years or more, not 30. A lower withdrawal rate, such as 3% to 3.5%, gives you a larger margin of safety for a longer time horizon and for the possibility that future market returns are lower than the historical average used in the original study.

A higher withdrawal rate, such as 5%, might make sense if you have flexibility to cut spending in bad market years, other income sources like a pension, or a shorter expected retirement.

What the rule doesn't account for

• Large one-time expenses, like a home repair or medical event
• Changes in spending as you age (often higher early, lower in the middle years, higher again for healthcare later)
• Taxes on withdrawals, which vary a lot depending on account type and country
• Sequence-of-returns risk — a market crash in your first few retirement years can hurt more than the same crash happening later

Use the 4% rule as a starting point, not a guarantee. Our calculator lets you adjust the withdrawal rate directly, so you can see how a more conservative number changes your target and your timeline.