4 Percent Rule for Retirement: What It Says and the Maths Behind It

What the rule says. In the year you retire, you withdraw 4% of your portfolio's value. Every year after that, you withdraw the same dollar amount, adjusted for inflation. The balance never re-enters the calculation after year one. The claim behind it is historical, not predictive: in William Bengen's 1994 study, a retiree holding 50-75% US stocks who started in any year since 1926 did not run out of money within 30 years, even the cohort that retired into late-1960s stagflation. The 1998 Trinity study reported the same finding as success rates: a 4% inflation-adjusted withdrawal over 30 years succeeded in 95% of historical periods with a 50/50 stock/bond mix and 98% with 75/25.

The misreading to avoid. The rule does not mean withdrawing 4% of the current balance every year. That is a different strategy, and its income swings with every market move. The actual mechanic anchors everything to year one: withdraw $40,000 from a $1 million portfolio, then raise that dollar figure by CPI annually whatever the balance does. At 3% inflation, year two's withdrawal is $41,200. Stable purchasing power is the design goal; drawing a fixed real amount from a shrunken pot in a long bear market is exactly where the historical failure cases live.

What it assumes. A 30-year horizon, US market returns from 1926 onward, no taxes, no fees and a retiree who never flexes spending. Withdrawals from a traditional 401(k) or IRA are taxed as ordinary income, so your spending figure must be a gross number, and a 1% advisory fee lowers the sustainable rate by roughly the same amount.

Where it creaks. Two places. First, horizon: a 40-year-old on the FIRE path needs the money to survive 50 years or more, and the safe rate falls as the horizon stretches. Second, sequence of returns risk: poor markets early in retirement, while fixed real withdrawals are chewing the pot, do damage that later recoveries cannot repair. The 4% rate did not eliminate that risk; it is simply the rate that survived the worst US sequences on record over 30 years. Past success rates describe history, not a guarantee about future markets.

Where the experts now sit. Bengen's 2025 book, A Richer Retirement, revises his own figure up to 4.7% for a 30-year retirement spread across seven asset classes rather than the original two. Morningstar's State of Retirement Income research, which uses forward-looking return estimates instead of pure history, put the safe starting rate at 3.7% for 2025 and 3.9% for 2026. For 50-60 year early retirements, Karsten Jeske's Safe Withdrawal Rate series at Early Retirement Now lands at roughly 3.25-3.5%. Those are estimates resting on different assumptions and horizons, not competing laws of nature, and the spread itself is the useful fact.

Using the number. The 25x multiple is the engine behind calculating your FIRE number, and our FI number calculator will run it against your own spending in seconds. It also powers Coast FIRE: the point where your current pot will grow into 25x by traditional retirement age without further contributions. To set the target itself, start with how much is enough; more US-focused pieces live in our US edition. None of this is a recommendation to hold any particular portfolio or retire on any particular date: the rule is planning arithmetic that turns a fuzzy dream into a number you can steer toward, decades before you need to pick an actual withdrawal strategy.