The short answer
The 4% rule says you can withdraw 4% of your retirement savings in the first year, then raise that amount each year with inflation, and your money would historically have lasted about 30 years. $1,000,000 supports $40,000 in year one. Flip it around and you need roughly 25 times the yearly income you want from savings.
Few rules of thumb are quoted as often as this one, and few are as misunderstood. It isn't a promise, it isn't a law, and it was never meant to be the last word. It's a starting estimate — a very useful one, as long as you know where it came from and where it breaks down.
On this page
Where the 4% rule came from
In 1994 financial planner William Bengen tested withdrawal rates against US stock and bond returns going back to 1926. He found that starting at about 4% of a balanced portfolio and increasing the amount with inflation would have lasted at least 30 years in every historical period he tested — including the Great Depression and the 1970s. A 1998 paper known as the Trinity study reached similar conclusions and made the idea famous.
How to use it
Work out the yearly income you want from savings (on top of any state pension or Social Security), then multiply by 25.
| Income wanted from savings | Savings needed (× 25) |
|---|---|
| $20,000 a year | $500,000 |
| $30,000 a year | $750,000 |
| $40,000 a year | $1,000,000 |
| $60,000 a year | $1,500,000 |
Is 4% still the right number?
It depends who you ask — and the experts genuinely disagree:
- Bengen himself has since revised his number up, to about 4.7%, after testing more diversified portfolios.
- Morningstar's research put a safe starting rate for new retirees lower, at around 3.7%, based on expected returns rather than history.
- Researchers including Wade Pfau have pointed out that in most countries other than the US, historical safe withdrawal rates fell below 4% — the US had an unusually good century.
On $1,000,000 that's the difference between $37,000 and $47,000 a year. Treat 3.5–4.5% as a sensible range rather than a single magic number.
What the 4% rule doesn't account for
- Retiring early. It was tested over 30 years. If you retire at 50, your money may need to last 40+ years — many people use 3–3.5% instead.
- Taxes and fees. The original research ignored both. A 1% yearly fee takes a big bite out of a 4% withdrawal.
- Real spending. Most retirees don't raise spending in a straight line — it often dips in the middle years and rises again with care costs later.
- Bad timing. A big market fall in the first few years of retirement (sequence risk) does far more damage than one later on.
A flexible approach often works better
Many planners suggest being willing to cut spending a little after a bad year. Even small adjustments make savings last much longer than a rigid 4% rule assumes.Getting from here to your number
If the target looks far away, two levers matter most: how much you save each month and how many years it has to grow. The compound interest calculator shows the effect of starting earlier, and the inflation calculator helps keep future figures in today's money.
Frequently asked questions
What is the 4% rule in simple terms?
Withdraw 4% of your savings in your first year of retirement, then increase that amount with inflation each year. Historically, that lasted about 30 years.
How much do I need to retire using the 4% rule?
About 25 times the yearly income you want from savings. $40,000 a year needs roughly $1,000,000.
Is the 4% rule safe?
It's a reasonable starting point, not a guarantee. It's based on US history over 30 years and ignores fees and taxes. Many experts suggest 3.5–4.5% depending on your situation.
Does the 4% rule work in the UK, Canada or Australia?
The idea works anywhere, but research suggests safe rates outside the US have historically been somewhat lower than 4%.
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