The 4% rule
Guide · By Kevin Lan · Updated September 2026
The 4% rule is the starting point for FIRE math: a tested rule of thumb for how much you can withdraw each year without running out. Here's where it comes from, and where it breaks down.
What the 4% rule says
The 4% rule says you can withdraw 4% of your starting portfolio in the first year of retirement, then adjust that dollar amount for inflation each year, and the money historically lasted at least 30 years across nearly every U.S. market period tested. It is why a FIRE number is usually quoted as 25× annual expenses: 25 is 1 divided by 4%. Spend $50,000 a year and the rule points to about $1,250,000.
Where it comes from: Bengen and the Trinity study
Financial planner William Bengen introduced the guideline in 1994. He tested a retiree drawing an inflation-adjusted income from a stock-and-bond portfolio across every rolling 30-year period in U.S. history (including retirements that began just before the crashes of 1929, 1937, and 1973–74) and found that 4% was the highest starting rate that survived all of them. He called it the “SAFEMAX.”
The 1998 Trinity study reached a similar conclusion using portfolio “success rates” across different stock/bond mixes and withdrawal rates. Both are historical back-tests on U.S. data: strong evidence, but not a law of nature.
Why the safe rate is below your average return
If stocks return roughly 7% real on average, why not withdraw 7%? Because you withdraw every year regardless of what the market does, and the order of returns matters. A steep loss early in retirement, taken while you are also selling to fund spending, shrinks the base that later gains would have compounded, and the portfolio may never recover. This is sequence-of-returns risk, and it is the single biggest reason the safe withdrawal rate sits well below the long-run average return. Two retirees with the same average return can end up worlds apart depending on when the bad years land.
3%, 3.5%, or 4%: choosing your rate
The right rate depends mostly on how long the money must last and how flexible your spending is. Because your FIRE number is 1 divided by your rate, small changes move the target a lot:
- 4% → 25× expenses ($1.25M on $50k). The classic 30-year benchmark.
- 3.5% → about 28.6× ($1.43M). Often used for longer, 40-year-plus early retirements.
- 3% → about 33× ($1.67M). Cautious, for very long horizons or conservative assumptions.
Early retirees plan for 40–50 years, not 30, which argues for the lower end. Recent Morningstar analyses have put a safe starting rate in the high-3% to 4% range, shifting year to year with bond yields and stock valuations. Dynamic “guardrail” strategies (trimming spending after bad years and raising it after good ones) can support a higher initial rate than a fixed inflation-adjusted withdrawal.
The rule's limits
Treat 4% as a benchmark to size a target, not a promise:
- It is built on U.S. history. The 20th-century U.S. was among the best-performing markets in the world; other countries' histories would have supported lower safe rates.
- It assumes a 30-year retirement. Longer horizons lower the safe rate; sequence risk has more time to bite.
- It ignores fees and taxes. High fund fees come straight off your safe rate. And the withdrawal must cover the taxes you owe, not just take-home spending, so enter a tax-inclusive expense figure.
- It is a fixed rule applied to an uncertain future. Real retirees adjust. Flexibility in bad years is worth more than any single “safe” number.
How to use it
Use the rate to size your target, then stress-test the plan. The calculator below lets you set any withdrawal rate and see the effect on both your FIRE number and your timeline immediately; the iPhone app adds a Monte Carlo simulation that checks your specific plan against 2,000 market paths, the direct answer to sequence-of-returns risk.
References
- Bengen WP. Determining withdrawal rates using historical data. Journal of Financial Planning. 1994;7(4):171–180. The paper that introduced the 4% withdrawal guideline.
- Cooley PL, Hubbard CM, Walz DT. Retirement savings: choosing a withdrawal rate that is sustainable. AAII Journal. 1998;20(2):16–21. Widely known as the “Trinity study.”
- Benz C, Rekenthaler J, Arnott A. The State of Retirement Income. Morningstar (updated annually). Analysis of safe starting withdrawal rates under current market conditions. morningstar.com
- Kitces M. Understanding sequence of return risk: safe withdrawal rates, bear-market crashes, and bad decades of returns. Nerd’s Eye View. kitces.com
- Pfau WD. Retirement Planning Guidebook. Vienna, VA: Retirement Researcher Media; 2021. Research on safe withdrawal rates and sequence-of-returns risk.
- Damodaran A. Historical annual returns on U.S. stocks, bonds and bills (1928–present). NYU Stern School of Business. pages.stern.nyu.edu/~adamodar
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Frequently asked questions
Is the 4% rule still valid?
It remains a widely used starting point. Some researchers suggest 3% to 3.5% for very long (40+ year) early retirements or cautious assumptions, while flexible ‘guardrail’ spending can support a slightly higher rate. Treat it as a benchmark to size your target, not a guarantee.
Why is the FIRE number 25 times expenses?
Because 25 is 1 divided by 4%. Withdrawing 4% of a portfolio equal to 25× your expenses covers one year of spending. At 3.5% the multiple is about 28.6×; at 3% it's about 33×.
What is sequence-of-returns risk?
The risk that poor market returns early in retirement, combined with withdrawals, permanently shrink the portfolio, even if the long-run average return is fine. It's the main reason the safe rate is below the average return, and why the order of returns matters as much as the average.
What withdrawal rate should I use for a 40-year retirement?
A longer horizon gives sequence risk more time to bite, so many researchers favor roughly 3% to 3.5% for a 40-to-50-year early retirement rather than the classic 4%. A lower rate raises your FIRE number; flexible spending can offset some of that.
