The 4% rule states that you can withdraw 4% of your portfolio in your first year of retirement, then adjust that amount for inflation each year, and have a high probability (historically 95%+) of not running out of money over 30 years.

Where did the 4% rule come from?

It originated from William Bengen's 1994 research and was validated by the 1998 Trinity Study. Both analyzed historical US market returns and found that a 4% initial withdrawal rate survived most 30-year periods.

Does the 4% rule still work in 2024?

The debate continues. Some researchers argue lower future returns require 3-3.5%. Others note that the original research was conservative and 4% remains valid. Most FIRE planners use 4% as a starting point with flexibility built in.

What is the 25x rule for retirement?

The 25x rule is the inverse of the 4% rule. If you can safely withdraw 4% per year, you need 25 times your annual expenses invested (since 100% / 4% = 25). Annual expenses of $40,000 means you need $1,000,000.

The 4% Rule: Does It Still Work?

← Back to Guides

What Is the 4% Rule?

The 4% rule is a guideline for how much you can safely withdraw from your investment portfolio each year in retirement without running out of money.

The rule says: Withdraw 4% of your portfolio in your first year of retirement. In subsequent years, withdraw that same dollar amount, adjusted for inflation.

Example:

You retire with $1,000,000
Year 1: Withdraw $40,000 (4%)
Year 2: Inflation was 3%, so withdraw $41,200
Year 3: Inflation was 2%, so withdraw $42,024
And so on...

Following this rule, historical data suggests you have about a 95% chance of not running out of money over a 30-year retirement.

Where It Came From

The 4% rule emerged from two key pieces of research:

William Bengen (1994)

Financial planner William Bengen published a paper analyzing how different withdrawal rates would have performed across every 30-year period in US market history, starting from 1926.

He found that a 4% initial withdrawal rate (adjusted for inflation each year) survived even the worst historical periods—including retirees who started right before the Great Depression or the stagflation of the 1970s.

He actually found that rates as high as 4.5% would have historically succeeded, but recommended 4% as a conservative floor.

The Trinity Study (1998)

Professors at Trinity University expanded on Bengen's work with more detailed analysis. They tested various withdrawal rates, time periods, and portfolio allocations (different mixes of stocks and bonds).

Their findings largely confirmed Bengen's: a 4% withdrawal rate with a diversified portfolio had a very high success rate over 30-year periods.

The study has been updated multiple times since, with similar conclusions.

How It Actually Works

Some important details that often get lost:

1. The 4% is only for year one.

You don't withdraw 4% of your current portfolio each year. You withdraw 4% of your starting portfolio, then adjust that number for inflation. This is crucial—it means your withdrawal amount doesn't drop when markets crash.

2. It assumes a specific portfolio.

The research typically assumes a 50-75% stocks, 25-50% bonds allocation. All-stock portfolios actually had lower success rates than balanced portfolios in some historical periods.

3. It's based on US market history.

The US stock market had exceptional returns in the 20th century. Other countries' markets have performed worse. This is both a feature and a bug—see criticisms below.

4. 30 years isn't forever.

The original research targeted a 30-year retirement. If you're retiring at 35 and expect to live to 90, that's 55 years. Longer time horizons require either more money or more flexibility.

The 25x Rule (Same Thing)

The 25x rule is just the 4% rule expressed differently.

If you can safely withdraw 4% per year, that means you need 100% ÷ 4% = 25 times your annual expenses.

$40,000/year expenses → Need $1,000,000
$60,000/year expenses → Need $1,500,000
$100,000/year expenses → Need $2,500,000

This is how most FIRE planners calculate their target "FIRE number."

The Criticisms

The 4% rule has plenty of critics. The main arguments:

"Future returns will be lower"

The 20th-century US market was unusually good. Current bond yields are historically low. Stock valuations (like the CAPE ratio) are high. Some researchers argue that 3% or even 2.5% is more realistic for retirements starting today.

This is the most serious criticism. We don't know future returns, and the historical data may not predict them.

"30 years isn't long enough"

Early retirees might need 50-60 years of retirement. Longer time horizons have lower success rates. Someone retiring at 35 faces different math than someone retiring at 65.

"It's based on one country's history"

The US market was a winner in the 20th century. Japan's market crashed in 1989 and still hasn't recovered. A Japanese retiree following the 4% rule would have failed. Geographic diversification helps, but there's no guarantee the US stays exceptional.

"It ignores sequence of returns risk"

If the market crashes right after you retire, you're withdrawing from a depleted portfolio. Even if returns average out over time, bad returns early can doom a retirement. The 4% rule accounts for this historically, but past sequences may not predict future ones.

"It's too rigid"

The rule assumes you withdraw the same inflation-adjusted amount regardless of market conditions. In reality, most retirees have some flexibility—they can cut spending in bad years, pick up part-time work, or delay major purchases.

The Defense

Despite the criticisms, many researchers and practitioners still think 4% is reasonable:

"The original research was conservative"

Bengen found that 4.5% historically worked. He recommended 4% as a floor, not a ceiling. The rule already has margin built in.

"Most people don't spend rigidly"

The failure scenarios assume robotic withdrawal regardless of market conditions. Real retirees adjust. They spend less in bad years, more in good years. With even modest flexibility, success rates increase dramatically.

"You'll probably have other income"

Social Security kicks in eventually. Pensions exist. Part-time work is possible. The 4% rule assumes your portfolio is your only income, which is conservative for most people.

"The research keeps getting updated"

Updated Trinity studies with more recent data still show high success rates for 4%. The rule has survived stress tests including 2008 and 2020.

"Perfect is the enemy of good"

Any withdrawal rate is a guess about the future. Analysis paralysis helps no one. 4% is a reasonable starting point that's well-studied and understood.

What Should You Actually Do?

Given the uncertainty, here's a practical approach:

1. Use 4% as your planning baseline.

It's well-researched and gives you a concrete target. Don't let the perfect be the enemy of the good.

2. Build in flexibility.

Plan to cut spending by 10-20% in bad market years. This dramatically increases success rates. If you can't cut at all, consider targeting 3.5% instead.

3. Keep some cash buffer.

Having 1-2 years of expenses in cash/bonds lets you avoid selling stocks during crashes. This reduces sequence-of-returns risk.

4. Don't retire on the razor's edge.

If your number is exactly 25x expenses, consider working another year or two. Some margin of safety reduces stress and increases odds of success.

5. Stay adaptable.

Monitor your portfolio. If things go badly in the first 5-10 years, adjust. Part-time work, spending cuts, or geographic arbitrage can all help. A rigid plan is a fragile plan.

6. Remember what the rule isn't.

The 4% rule isn't a guarantee. It's not a law of physics. It's a heuristic based on historical data that may or may not predict the future. Use it as a guide, not a religion.

Common Questions

Should I use 3% to be safe?

That's conservative but not unreasonable. It means needing 33x expenses instead of 25x—significantly more. Whether that extra margin is worth years more of work depends on your risk tolerance and how much flexibility you have.

What about the 3.5% rule or 3.25% rule?

Some researchers recommend these for early retirees with 40-50+ year time horizons. They're reasonable middle grounds between 4% and ultra-conservative 3%.

Does the 4% rule account for taxes?

No. The withdrawal rate is pre-tax. If you're withdrawing from tax-deferred accounts (401k, traditional IRA), your actual spending money is less. Plan accordingly.

What if I want to leave money to heirs?

The 4% rule aims to not run out of money. In most historical scenarios, retirees ended up with MORE than they started with. But if leaving a large inheritance is a priority, consider a lower withdrawal rate.

Does the rule assume I never earn money again?

Yes. Any income you earn in "retirement" reduces your withdrawal needs and increases your success rate. Even occasional freelance work or part-time jobs help significantly.

What about inflation?

The rule accounts for inflation—you increase your withdrawal amount each year to maintain purchasing power. That's built into the research.

The 4% rule is a starting point, not an ending point. It gives you a target to aim for and a framework for thinking about retirement sustainability. The actual number that works for you depends on your flexibility, time horizon, risk tolerance, and life circumstances.

Use it as a guide. Build in margins. Stay adaptable. And remember that perfect planning is impossible—good enough is good enough.

→ Calculate your FIRE number
→ See when you can retire
→ Read the research citations