What is the 4% rule in simple terms?

In your first year of retirement, withdraw 4% of your savings. Each year after that, withdraw the same dollar amount adjusted for inflation. Historically, with a mix of stocks and bonds, that approach lasted at least 30 years in every period William Bengen tested.

How much do I need to retire using the 4% rule?

About 25 times the yearly amount you need from savings. If you need $40,000 a year on top of Social Security, the rule suggests roughly $1 million.

Is the 4% rule too conservative or too aggressive?

Both, depending on the retiree. It was built to survive the worst historical periods, so most retirees following it historically ended with more money than they started with. But it assumes a 30-year retirement, no fees, and a balanced portfolio; longer retirements, high fees, or very conservative portfolios argue for a lower rate.

Does the 4% rule include Social Security?

No. The 4% applies to your investment portfolio. Social Security, pensions, and annuities are separate income that reduce how much you need to withdraw.

What is sequence-of-returns risk?

The risk that poor returns arrive early in retirement, while you're withdrawing. Losses early on shrink the portfolio just as withdrawals take a larger share of it, and later good years can't fully make up for it. Two retirees with the same average return can get very different outcomes depending on the order of those returns.

The 4% Rule Explained: Does It Still Work?

Key takeaways

The 4% rule: withdraw 4% of savings in year one ($40,000 from $1,000,000), then raise that amount with inflation each year.
It came from U.S. market history. A 4% start survived every 30-year stretch in the original study with a balanced portfolio.
Flip it and you get a target: about 25 times the spending your savings must cover.
It’s a starting point. Longer retirements and high fees call for less, and flexible spending can safely allow more.

The 4% rule is the most-quoted number in retirement planning. It answers one question: how much can you take from a portfolio each year without running out during a 30-year retirement?

Where the rule comes from

In 1994, financial planner William Bengen tested withdrawal rates against U.S. stock and bond returns going back to 1926. He had each hypothetical retiree withdraw a fixed percentage in the first year, then increase the dollar amount with inflation, regardless of how markets did.

With a portfolio of roughly half stocks and half bonds, a 4% starting withdrawal lasted at least 30 years in every historical period, including retirements starting just before the Great Depression and the high inflation of the late 1960s and 1970s. Higher rates failed in some periods. A later study from Trinity University reached similar conclusions.

How it works in practice

With $1,000,000 saved:

Year 1: withdraw 4%, or $40,000.
Year 2: withdraw $40,000 plus inflation. At 3% inflation, $41,200.
Year 11: about $53,757, whatever the portfolio is worth by then.

You don’t recalculate 4% of the new balance each year. The first-year amount sets your income, and inflation adjusts it from there. That’s what makes the plan predictable and also what makes it risky if markets fall early.

What returns and spending do to the outcome

Here’s $1,000,000 over 30 years (age 65 to 95) with 3% inflation, at steady average returns:

Average annual return	Start at $40,000 (4%)	Start at $50,000 (5%)
4%	Runs out at 93	Runs out at 87
5%	Lasts; $258,325 left	Runs out at 89
6%	Lasts; $1,017,032 left	Runs out at 94

Two lessons. First, the gap between 4% and 5% withdrawals is bigger than it sounds: a quarter more spending from day one, compounding with inflation for 30 years. Second, a steady average return is the friendly version. Real markets are bumpy, and the order of returns matters.

Sequence-of-returns risk

Two retirees can earn the same average return and get very different results. If the portfolio falls 25% in the first two years while you keep withdrawing, you sell more shares at low prices, and there’s less left to recover. The same drop in year 20 does far less damage.

That’s why the 4% rule is built from the worst historical starting years, and why many retirees keep one to three years of spending in cash or short-term bonds so they don’t have to sell stocks in a downturn.

When 4% is too high

Retirements longer than 30 years. Retiring at 55 or planning to 100 argues for something closer to 3% to 3.5%.
High fees. A 1% annual advisory or fund fee comes straight out of the safe withdrawal rate.
Very conservative portfolios. An all-bond or cash-heavy portfolio historically couldn’t sustain 4% with inflation raises.
Rigid spending. If you can’t cut back after a bad year, give yourself more margin.

When you can spend more

Flexible spending. Guardrail approaches cut withdrawals by 10% or so after bad years and raise them after good years. Retirees willing to do that have historically been able to start above 4%.
Delaying Social Security. Waiting to claim raises a lifelong, inflation-adjusted income stream, so your portfolio has to cover less. See when to claim Social Security.
Spending that naturally declines. Many retirees spend less in their late 70s and 80s than in their 60s, though health costs can offset that.

Using the rule to set a target

Reverse it: savings target ≈ yearly spending from savings × 25. If you need $40,000 a year beyond Social Security, that’s about $1,000,000. For a full walkthrough that accounts for inflation before retirement, see how much do I need to retire?

Disclaimer: This guide is general education, not financial, tax, or legal advice. Examples use round, hypothetical numbers; your results depend on your own loan terms, taxes, and circumstances. See oureditorial policy for how guides are written and corrected.