What Is the 4% Rule for Withdrawals in Retirement?
By Markets & Investing DeskUpdated Nov 10, 2026
Definition
The 4% rule says you withdraw 4% of your portfolio in your first year of retirement, then raise that dollar amount by inflation each year so savings last about 30 years.
Key takeaways
- Year one: withdraw 4% of the portfolio's value at retirement. Every later year: raise the previous year's dollar amount by inflation.
- Financial adviser Bill Bengen developed the rule in the mid-1990s from historical U.S. stock and bond returns. A 4% starting rate never exhausted a portfolio in fewer than 33 years, and he later suggested 5% as more realistic.
- It assumes a 50/50 stock and bond portfolio and a roughly 30-year retirement. It is not a guarantee, and it may be too aggressive for people who retire early.
The 4% rule is a retirement withdrawal guideline: in your first year of retirement you withdraw 4% of your portfolio’s starting value, and in each later year you withdraw that same dollar amount adjusted for inflation, regardless of what the portfolio did. The aim is for the savings to last about 30 years. The percentage sets only your first-year spending. After that, the rule tracks dollars, not percentages.
How the 4% rule works
The rule has two steps, and only the first one involves the 4% figure.
Step 1: Set the first-year withdrawal.
First-year withdrawal = Portfolio value at retirement × 0.04
Step 2: Adjust the dollar amount each year after that.
Next year’s withdrawal = This year’s withdrawal × (1 + inflation rate)
Because step 2 ignores the current balance, your withdrawal as a share of the portfolio drifts over time. In a strong market the percentage falls below 4%. In a weak market it rises above 4%. The rule accepts that drift on purpose: it trades flexibility for a predictable, inflation-protected income.
The withdrawals come from the portfolio’s total return. That means dividends and interest, plus selling shares or bonds when income alone does not cover the amount. With a reasonably healthy market, much of what you withdraw over time comes from investment gains rather than original principal, which is how the portfolio can survive three decades of withdrawals.
Adjusting for inflation
Inflation adjustment keeps your purchasing power steady. Two approaches are common:
- Actual inflation. Raise each year’s withdrawal by the change in the cost of living, usually measured by the Consumer Price Index. This most closely matches income to real expenses.
- A flat assumed rate. Raise the withdrawal by a fixed percentage each year, such as 2%, the Federal Reserve’s inflation target. This is simpler and more predictable. If actual inflation runs higher, though, your real spending power shrinks.
The choice matters most over long horizons. A one-percentage-point gap between assumed and actual inflation, compounded for 20 or 30 years, produces a noticeably different income.
Example of the 4% rule
Hypothetical example for illustration only. Assume a retiree has $1,000,000 in a balanced portfolio at retirement, and inflation turns out to be 3% in the first year and 2% in the second.
| Year | Withdrawal calculation | Withdrawal |
|---|---|---|
| 1 | $1,000,000 × 4% | $40,000 |
| 2 | $40,000 × 1.03 | $41,200 |
| 3 | $41,200 × 1.02 | $42,024 |
Now suppose the market drops and the portfolio is worth $800,000 at the start of year 2. The rule still calls for $41,200. That is about 5.15% of the reduced balance ($41,200 ÷ $800,000). If the portfolio instead grew to $1,150,000, the $41,200 withdrawal would be about 3.6% of the balance. In both cases the retiree’s income is identical. Only the stress on the portfolio changes.
The withdrawal is a gross figure. If the money comes from a traditional 401(k), IRA or the Thrift Savings Plan, income tax is paid out of it, so spendable income is lower.
Where the 4% rule came from
Bill Bengen, a financial adviser, published the research behind the rule in the mid-1990s in a paper titled “Determining Withdrawal Rates Using Historical Data.” He tested withdrawal rates against U.S. stock and bond returns going back to 1926, paying particular attention to retirements that began just before severe downturns, such as the Great Depression and the high-inflation 1970s.
His finding was that a 4% initial withdrawal, adjusted for inflation, lasted at least 33 years in every historical period he examined. Because 4% was set by the worst historical outcomes, Bengen later argued that the rule had been oversimplified and that 5% would be a more realistic rate in most scenarios.
A few years later, three professors at Trinity University ran a related analysis of withdrawal rates and portfolio success. That work, often called the Trinity study, helped make “4% safe withdrawal rate” a standard term in retirement planning.
Later reviews tested the rule against more recent crises. Financial planner Michael Kitces examined how retirements starting in 2000 (the tech crash) and 2008 (the global financial crisis) held up. He found the 2000 retiree roughly in line with the 1929 retiree, and the 2008 retiree tracking better than the worst historical cases. Kitces also observed that 4% is modest compared with the long-term historical average return of almost 8% on a 60/40 balanced portfolio. He still advised against going higher, because the rule is designed around protecting against bad outcomes rather than average ones.
How the 4% rule is used
The most common use is as a simple retirement calculator in either direction:
- How much can I spend? Multiply your savings by 0.04.
- How much do I need? Divide your desired annual portfolio income by 0.04, which is the same as multiplying it by 25. Someone who wants $50,000 a year from investments, after counting Social Security or a pension, would need about $1,250,000.
That reverse calculation, sometimes called the rule of 25, is widely used to set retirement savings targets. It is also the basis of many early retirement plans in the FIRE movement, though those plans often use a lower rate because the money must last longer.
Planners also use the rule as a starting point rather than a final answer. Life expectancy is the key input, and medical and care costs can rise with age, pushing spending needs up late in retirement.
Limitations of the 4% rule
It is based on the past. The rule describes what would have worked across historical U.S. market periods. Future returns, bond yields and inflation could be worse than any past period. Some experts, pointing to periods of low interest rates on bonds and savings, have argued that 3% is a safer starting rate.
Sequence of returns risk. The order of returns matters once withdrawals begin. A large loss early in retirement forces you to sell more shares at low prices to fund the same dollar withdrawal. That shrinks the base that later recoveries can rebuild.
It assumes a specific portfolio. Bengen’s results came from a 50/50 mix of stocks and intermediate-term Treasuries. A portfolio heavy in cash or very conservative bonds may not earn enough to sustain the withdrawals. A portfolio concentrated in a few high-risk holdings can fall much faster than a diversified one in a severe downturn. Many advisers suggest shifting toward a mix of stocks, bonds and cash during retirement, which changes the math.
It requires strict adherence. The rule only works if you stick to it. Pulling out an extra lump sum one year for a large purchase permanently reduces the principal and the future growth that the plan depends on.
It does not respond to your life. Spending in retirement is rarely a smooth, inflation-adjusted line. Large one-time costs, changing health needs or a desire to spend more in the early, active years do not fit neatly into a fixed formula.
It ignores fees and taxes. Investment fees reduce the return available to fund withdrawals. Taxes on withdrawals from tax-deferred accounts reduce what you can actually spend.
It is sized for about 30 years. Someone retiring at 45 or 50 may need income for 40 years or more, a horizon the original research was not built around.
It can leave money unspent. Because the rate is set by worst-case history, retirees who start in average or strong markets often finish with large balances. That is fine for leaving an inheritance, but it means spending less than they could have.
What the 4% rule is not
- Not 4% of the current balance each year. Withdrawing a fixed percentage of whatever the portfolio is worth is a separate method. It never runs the portfolio to zero, but income rises and falls with the market. The 4% rule keeps income steady and lets the portfolio absorb the volatility.
- Not living off 4% of investment returns. The rule does not require that you spend only dividends and interest. Selling assets is part of the plan.
- Not a guaranteed income. Unlike an annuity or pension, nothing contractually ensures the money lasts. The rule is a historical rule of thumb.
- Not the same as a 5% or 3% rule. These use the identical mechanics with a different starting rate. A 5% rate supports a more comfortable lifestyle with higher risk of depletion. A 3% rate extends the money further but limits spending.
The Bottom Line
The 4% rule suits retirees and savers who want a quick way to size spending or set a savings target, such as multiplying desired portfolio income by 25. It was built on worst-case U.S. history for a 50/50 portfolio over roughly 30 years, so treat it as a starting point. Early retirees, conservative investors and anyone facing fees, taxes or uneven spending should adjust the rate to fit their situation.
