The 4% Rule: How Much You Can Safely Withdraw

How much can you spend each year in retirement without running out of money? The 4% rule is the famous starting answer. It is a useful rule of thumb, but knowing its assumptions, and its weaknesses, keeps you from leaning on it too hard.

What the rule says

The 4% rule suggests that in your first year of retirement you withdraw 4% of your portfolio, then increase that dollar amount with inflation each year. By this guide, a $1 million portfolio supports about $40,000 in the first year. The flip side is the "25x rule": you need roughly 25 times your annual spending saved to retire.

Where it came from

It originated in research (the "Trinity study" and related work) testing historical 30-year retirements across stock and bond market history. A 4% starting withdrawal, adjusted for inflation, survived nearly all 30-year periods without depleting the portfolio. It assumes a diversified stock-and-bond mix.

Its limitations

The rule is a guideline, not a guarantee. It was built on a 30-year horizon, so early retirees planning for 40 to 50 years may want a lower rate (closer to 3 to 3.5%). It also assumes rigid, inflation-adjusted spending and does not account for taxes, fees, or the "sequence of returns" risk of a bad market early in retirement.

Sequence-of-returns risk

The order of returns matters enormously. A market crash in your first few retirement years, while you are withdrawing, can do lasting damage even if average returns are fine. This is why many retirees keep a cash buffer and stay flexible with spending early on.

How to use it well

Treat 4% as a planning anchor, not a law. Stay flexible: trim withdrawals in down years and you can often spend more in good ones. Use it to estimate your "number" (25x spending), then stress-test with lower rates and real tax assumptions before relying on it.

Model your own withdrawals with our retirement withdrawal calculator.