The 4% Rule: A Guide to Safe Withdrawal Rates
What the Rule Actually Says
Withdraw 4% of your portfolio's value in your first year of retirement. Every year after that, increase the amount you withdrew by inflation, and ignore what the portfolio is doing.
The detail people get wrong is the word first. It is 4% of the starting balance, adjusted for inflation thereafter. It is not 4% of whatever the portfolio happens to be worth each year. Those are different strategies with different risks: the second can never run out and can force you to cut your spending sharply, while the first gives you a stable income and can, in principle, fail.
On a EUR 800,000 portfolio, year one is EUR 32,000. If inflation runs 3%, year two is EUR 32,960 regardless of whether markets rose or fell.
Where It Came From
William Bengen published the original work in 1994, testing withdrawal rates against historical US market data to find the highest rate that survived every 30-year period he examined, including retirements beginning just before the worst downturns on record.
Two details worth knowing. The answer his arithmetic produced was slightly above 4%, and it was rounded down to a memorable number that then stuck. And the test was survival, not comfort: a portfolio that finished with one euro counted as a success.
The Revision
Bengen has since re-run the analysis with a broader portfolio, and his revised work puts the safe rate closer to 4.7% for a 30-year retirement, with a suggestion that many retirees could go higher still in favourable conditions.
The reason matters more than the number. The increase does not come from a rosier view of markets. It comes from diversification: the original modelled large-cap US stocks and government bonds, while the revised work spreads across company sizes, international stocks and shorter-dated instruments, and the broader mix held up better through the bad scenarios (Bengen's revised analysis, as reported by Morrissey Wealth Management).
Turn It Around: The 25x Target
For anyone still saving, the rule is more useful upside down. If you can withdraw 4% a year, then the pot you need is 25 times your annual spending, because 1 divided by 0.04 is 25.
You spend EUR 32,000 a year:
At 4%: 32,000 / 0.04 = EUR 800,000
At 4.7%: 32,000 / 0.047 = EUR 680,851A 0.7 percentage point change in the assumed rate moves the target by about EUR 119,000, roughly 15% of the whole number. That sensitivity is the most important thing on this page. The target is not a fact about your life; it is a fact about the rate you assumed, and the rate is contested.
The FIRE calculator works the same relationship from the other end: it takes your spending and your savings rate and returns a date rather than a pot.
The Assumptions That May Not Be Yours
This is where the rule quietly stops applying, and where most articles wave.
Thirty Years, Not Fifty
The research tested 30-year retirements. Someone retiring at 45 may need the money to last 50 years, which is not a longer version of the same problem. A rate that survives 30 years does not automatically survive 50, and the further out you go the more the arithmetic of failure compounds.
A US Portfolio and US History
The data behind the rule is American: US equities, US bonds, US inflation. The twentieth-century US market was one of the more successful in the world, and building a plan on the historical record of the best performer is a specific bet. A European investor holding European and global assets has a different return and inflation history.
Taxes and Fees Come Out of Your Number
The model withdraws a gross amount. Your tax comes out of that, as do fund charges and platform fees. If you need EUR 32,000 to live on and your withdrawals are taxed, the pot has to be larger than the 25x figure suggests. See cost efficiency for what charges do over long periods.
Sequence of Returns Is the Real Risk
This is the failure mode that matters, and it is unintuitive: when the bad years arrive matters more than the average return.
Two retirees can experience identical average returns over 30 years and end up in completely different places, because one met a severe fall in the first few years while still withdrawing a full income, permanently shrinking the base that had to recover. The other met the same fall at year 25, by which point it barely mattered.
Average returns say nothing about this. Maximum drawdown is closer to the right lens, since it asks about the worst stretch rather than the typical one.
What People Do Instead
Neutrally, and without recommending any of them:
- Fixed percentage of the current balance. Take 4% of whatever the portfolio is worth each year. It can never run out, and your income falls in bad years, sometimes steeply.
- Guardrails. Start at a rate and adjust up or down when the portfolio crosses set boundaries. More stable than the fixed-percentage approach and more responsive than the original rule.
- A cash buffer. Hold one to three years of spending in cash so that a bad first year does not force selling into a fall. Addresses sequence risk directly at the cost of holding non-growing assets.
How Turbobulls Tracks the Accumulation Side
The withdrawal phase is a planning question. Getting to the number is a tracking question, and that is the part the product covers.
Savings rate shows what proportion of your income is actually being saved, which drives the target from both ends at once: saving more grows the pot, and spending less lowers the target.
FI progress projection measures where you are against financial independence. This sits on the paid plan, and the reason recorded in the code is worth repeating because it is the honest one: an FI figure needs both the earning and the spending side of your finances, and a capped plan sees only part of that, so quoting a number from half the picture would be worse than not quoting one.
Alongside those, cash accounts and income and expense tracking with categories and tags produce the spending figure the whole target rests on, and account types include retirement, loan and mortgage.
Measure the Gap to Your Number
The Full Picture: Read These Next
Frequently Asked Questions
Q: Is 4% still safe?
The original research found it survived every historical 30-year period it tested, and its author has since argued the rate could be higher with a more diversified portfolio. Neither statement is a promise about the future, and both rest on US market history. Treat it as a planning starting point that you revisit, not a number you set once.Q: Does it work for early retirement?
It was not tested for it. A 50-year retirement is a materially different problem from the 30-year one the research examined, and most people planning for one use a lower rate, a larger cash buffer, or expect some future income. This is the assumption most worth taking seriously if you are retiring early.Q: Does the 4% include tax?
No. The withdrawal is a gross figure and your tax comes out of it, so the pot needed to fund a given lifestyle is larger than a naive 25x calculation on your spending suggests. How much larger depends entirely on where you are tax resident and what kind of account the money is in.Q: What if the market crashes in my first year?
That is the sequence-of-returns problem, and it is the single most dangerous timing for a retiree because you are withdrawing a full income from a shrunken base. It is why cash buffers and flexible withdrawal approaches exist. A crash in year 25 of a 30-year retirement is a far smaller problem than the identical crash in year 2.Turbobulls is a tracking and analytics tool, not an investment adviser. Nothing here is investment, tax, or legal advice. Investing involves risk, including loss of principal. Do your own research or consult a licensed professional.
Know Where You Actually Are
Turbobulls builds your savings rate, spending and net worth trajectory from real transactions, so the distance to your number stops being a guess.
- Savings rate computed from actual income and expenses
- Income and expense tracking with categories and tags
- Net worth trajectory across investments, cash and debt
- Account types including retirement, loan and mortgage
- FI progress projection on the paid plan
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