Withdrawal strategies: the 4% rule explained
Once you stop working, the question changes from “how much can I save?” to “how much can I take out each year without running out?”. The amount you take out, as a share of your savings, is your withdrawal rate. This guide explains the best-known rule of thumb, the 4% rule, where it comes from, what the research behind it did and didn’t test, and how other ways of withdrawing money differ. It describes ideas; it doesn’t tell you which approach fits your situation.
What the 4% rule says
The 4% rule has two steps:
- In the first year of retirement, withdraw 4% of your savings.
- In every later year, withdraw the same amount as the year before, raised by inflation. You don’t recalculate 4% of whatever the balance happens to be.
So the “4%” is an initial rate. After year one, the withdrawal follows prices, not the markets.
Example: with savings of $1,000,000, the first-year withdrawal is $40,000. If prices then rise 2.5% in a year (a hypothetical rate), the next year’s withdrawal is $41,000, whatever the balance has done.
The rule also works backwards, which is how most people use it. If you know what you want to spend each year from savings, divide by the withdrawal rate to get a target:
Target = yearly spending from savings ÷ withdrawal rate
At 4%, that is the same as multiplying by 25. Example: $40,000 a year ÷ 4% = $1,000,000. Our calculator How much do I need? does exactly this, and also subtracts other yearly income such as a state pension first: ($40,000 − $15,000) ÷ 4% = $625,000.
Where it comes from: Bengen (1994) and the Trinity study (1998)
Two pieces of US research are usually cited as the origin of the 4% rule.
Bengen (1994). William P. Bengen published “Determining Withdrawal Rates Using Historical Data” in the Journal of Financial Planning in October 1994. He tested how different withdrawal rates would have held up against historical US stock and bond returns, and his work is widely seen as the starting point of the 4% rule. He tested a first-year withdrawal of 4% of the portfolio, followed by withdrawals adjusted for inflation each year, from a portfolio of 50% common stocks and 50% intermediate-term Treasury notes, using US data from 1926, and found: “In no past case has it caused a portfolio to be exhausted before 33 years” (Bengen, W. P., “Determining Withdrawal Rates Using Historical Data,” Journal of Financial Planning, October 1994, pp. 171–180, p. 173).
The Trinity study (1998). Philip L. Cooley, Carl M. Hubbard and Daniel T. Walz, three professors at Trinity University, published “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable” in the AAII Journal in February 1998. They calculated how often different withdrawal rates would have lasted over 15, 20, 25 and 30 years, for different mixes of stocks and bonds, using US returns from 1926 to 1995.
Their Table 3 is the one closest to the 4% rule, because it raises withdrawals with inflation every year. For a portfolio of 50% stocks and 50% bonds over 30 years, it shows:
| Initial withdrawal rate | Share of past 30-year periods (1926–1995) the portfolio lasted |
|---|---|
| 3% | 100% |
| 4% | 95% |
| 5% | 76% |
| 6% | 51% |
Source: Cooley, Hubbard & Walz (1998), Table 3, inflation-adjusted withdrawals, 50% stocks / 50% bonds, 30-year payout periods.
The authors summarised that, after adjusting for inflation, withdrawal rates of 3% to 4% continued to produce high success rates for stock-dominated portfolios, while higher rates performed well only over shorter periods.
What the research tested, and what it didn’t
The 4% rule is often quoted as if it were a law of nature. The studies behind it were more specific than that. Knowing their limits helps you read the rule correctly.
- Past US markets only. Both studies used historical US returns. Their results describe the US past; they don’t test other countries’ markets.
- Up to 30 years. The Trinity study tested payout periods of 15 to 30 years. A retirement that starts at 50 can easily last longer than that, and those periods fall outside what was tested. More on long retirements: all retirement guides.
- Specific investments. The Trinity study used the S&P 500 index for stocks and long-term, high-grade corporate bonds for bonds. A different mix, or different investments, can behave differently.
- Inflation by the CPI. Withdrawals were adjusted with the US Consumer Price Index. Your own costs may rise faster or slower than that index.
- No taxes or transaction costs. The Trinity authors state that the study did not adjust for taxes or transaction costs. If you pay fees from your savings, the amount left for spending is lower.
- “Success” means not running out. A period counted as a success if money was left at the end, however little. The tables say nothing about how comfortable the journey was.
None of this makes the rule useless. It makes it a starting point for exploring, not a promise.
Common withdrawal approaches
There is more than one way to take money from savings. Here are the main families, described in general terms. Each has trade-offs; none is right for everyone.
Fixed amount, adjusted for inflation
This is the 4% rule’s method. You set the first-year amount and raise it with inflation each year.
- What it gives: a steady, predictable income in real terms.
- What it costs: the balance absorbs all market swings. After bad years, you still withdraw the same real amount, which takes a bigger bite out of a smaller balance (see Retirement risks).
Fixed percentage of the current balance
Each year you withdraw the same percentage of whatever the balance is at that moment. The Trinity authors also discuss this idea: applying a withdrawal rate to a changing portfolio value means the amount withdrawn changes with it.
Example: 4% of $1,000,000 is $40,000. If the balance later falls to $800,000, 4% is $32,000; if it rises to $1,200,000, 4% is $48,000.
- What it gives: in theory the money never runs out completely, because you always take a share of what is left.
- What it costs: your income rises and falls with the markets, sometimes sharply.
Flexible rules with limits
Between those two sit many flexible approaches: for example, a fixed real amount that is cut back after bad years and raised after good ones, within set limits. They try to combine a fairly steady income with some protection for the balance. The details vary a lot, and so do the trade-offs, depending on the rules chosen. Retirement withdrawal scenarios: fixed, dynamic and guardrails compared shows four approaches side by side under the same good and bad years.
Using other income first
Many retirees have income that doesn’t come from savings: a state pension, Social Security, a workplace pension, an annuity or rent. The more of your spending that income covers, the less your savings have to provide. That is why our calculators subtract other yearly income before applying a withdrawal rate. See Where retirement income comes from.
From withdrawal rate to target
Small changes in the withdrawal rate make large changes in the target. Example: for $40,000 of yearly spending from savings:
| Withdrawal rate | Target (spending ÷ rate) |
|---|---|
| 3% | $1,333,333 |
| 3.5% | $1,142,857 |
| 4% | $1,000,000 |
| 5% | $800,000 |
This is pure arithmetic, not a recommendation. Our calculators let you choose a rate between 2.5% and 6% so you can see how sensitive your own target is:
- How much do I need?: your target in today’s money, and an inflated target for a later retirement year.
- How long will my money last?: how many years a given withdrawal would last with a steady return and inflation.
- Can I retire at X?: whether your projected savings could reach the target by a chosen age.
- Which withdrawal strategy holds up when markets fall?: how long the money could last under four withdrawal approaches with steady returns, bad years first or good years first.
Limits: fees, taxes, longer retirements, other countries
Before relying on any withdrawal rate, it helps to remember what a simple rule leaves out:
- Fees are taken every year and compound over time. Our calculators expect a return after fees. More on investment terms: all retirement guides.
- Taxes differ by country and account type. If you pay tax from your savings, one simple approach is to add it to your yearly spending.
- Longer retirements need the money to last more years than the studies tested.
- Other countries have different market histories, inflation and pension systems.
- Inflation is a key input: the rule raises withdrawals with prices every year. For how inflation is measured, see Retirement risks; current official figures are on our numbers pages.
FAQ
What is the 4% rule?
A rule of thumb: take 4% of your savings in year one of retirement, then raise that amount with inflation every year. At 4%, a target equals 25 times the yearly amount you need from savings.
Where does the 4% rule come from?
From William Bengen’s 1994 article in the Journal of Financial Planning, which tested withdrawals against past US returns, and from the 1998 “Trinity study” by Cooley, Hubbard and Walz in the AAII Journal.
Did a 4% withdrawal always last in the past?
Not always. In the Trinity study’s inflation-adjusted table (Table 3), a 4% withdrawal from a 50% stock / 50% bond portfolio lasted 30 years in 95% of the periods tested from 1926 to 1995. At 6%, that fell to 51%.
Is the 4% rule enough for an early retirement?
The studies looked at retirements of up to 30 years. A longer retirement falls outside what they tested. Our calculators let you compare rates from 2.5% to 6% to see how much the target changes.
Does the 4% rule apply outside the US?
The original studies used US stock and bond returns only, so their results describe the US past. They don’t test other countries’ markets.
What is the difference between a fixed amount and a fixed percentage?
With a fixed inflation-adjusted amount, your income stays steady and the balance absorbs market swings. With a fixed percentage of the current balance, the money cannot run out in theory, but your income rises and falls with the markets.
Sources
- Bengen, W. P. (1994). “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning, October 1994, pp. 171–180. PDF via the Financial Planning Association: https://www.financialplanningassociation.org/sites/default/files/2020-05/7%20Determining%20Withdrawal%20Rates%20Using%20Historical%20Data.pdf (accessed 2026-10-17). Supports: origin of the 4% rule.
- Cooley, P. L., Hubbard, C. M. & Walz, D. T. (1998). “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable.” AAII Journal, February 1998. PDF: https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf (accessed 2026-10-17). Supports: Table 3 success rates, test periods, assets used, inflation adjustment.
- U.S. Bureau of Labor Statistics, Consumer Price Index: https://www.bls.gov/cpi/ (accessed 2026-10-17). Supports: what the CPI measures.
Last reviewed: 2026-10-17. See our methodology and editorial policy.
Educational estimate, not personal financial, tax or legal advice. Rules differ by country; verify with official sources or a licensed professional. See our disclaimer.