What is the 4% rule? Origin, assumptions and limits
Where it comes from
US financial planner William Bengen published research in 1994 that back-tested stock and bond returns across many retirement start years. A 4% first-year withdrawal, adjusted for inflation, lasted 30 years in his data.
The 1998 Trinity study (Cooley, Hubbard and Walz) used a similar method across different stock and bond mixes and withdrawal rates and is also widely cited. Both are historical back-tests focused on the US market.
What it assumes
- A retirement of about 30 years.
- A portfolio with a meaningful share of stocks (commonly 50% to 75%).
- After the first year, withdrawals only rise with inflation and do not change with market results.
- US-centred historical data, which does not mean other markets or the future will match.
Its limits
For early retirement or a horizon beyond 30 years, many planners use a lower rate such as 3% to 3.5%.
The order of returns matters: a large fall early in retirement (sequence risk) does far more harm than one late.
Taxes, fees, healthcare and long-term care can raise what you really need.
Using it in your own plan
Treat 4% as a first rough cut: savings needed = yearly spending covered by savings ÷ withdrawal rate. Then compare scenarios at 3%, 3.5% and 4%, and check the success rate with a Monte Carlo simulation.
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FAQ
Does the 4% rule guarantee I will not run out?
No. It is a rule of thumb from US historical back-tests, and future markets may differ.
Does the 4% rule work outside the US?
The original research is US-focused. Use it as a starting point, but inflation, taxes, pensions and currency differ elsewhere, so consider a more conservative rate and compare scenarios.
What withdrawal rate for early retirement?
With a longer horizon, a lower rate such as 3% to 3.5% is common, with room to adjust. Decide based on your situation and professional advice.
Keep reading
- How much do I need to retire? Annual spending × 25, minus pensionsEstimate the nest egg you need with annual spending × 25 (the 4% rule), then adjust for inflation and pensions. With a worked example you can check yourself, and common blind spots.
- Monte Carlo simulation: reading the odds of a retirement planHow a Monte Carlo simulation uses many random market paths to estimate the chance your savings last, and how to read a success rate.
This page is general educational information and a description of calculation methods. It is not investment, tax or retirement advice and guarantees no outcome. Check official pension and tax rules and talk to a qualified professional for your situation.