The 4% Rule

September 9, 2025 · A research-backed retirement strategy to guide sustainable withdrawals.

The 4% rule stands as one of the most prominent research backed retirement strategies, offering guidance on how much a retiree can safely withdraw from their portfolio each year without running out of money.

How it works?

The rule operates on a simple premise: withdraw 4% of your initial portfolio at retirement, and then adjust the dollar amount for inflation every subsequent year. For instance:

Year 1: Withdraw 4% of your starting balance.
Year 2 onwards: Increase the previous year’s withdrawal by the inflation rate.

The strategy is built on the assumption that historical returns from a balanced portfolio will sustain this withdrawal rate for three decades.

Assumptions:

The retiree’s portfolio is invested in a 50/50 or 60/40 mix of U.S. stocks and bonds.
Withdrawals occur annually and are adjusted for inflation.
Historical market returns will continue to resemble past patterns.
The retiree’s time horizon is 30 years.

Limitations

Market returns may differ from historical averages, affecting portfolio longevity.
Inflation may be higher or lower than anticipated, impacting purchasing power.
Personal circumstances (health, spending needs, legacy goals) may require adjustments to the rule.
Does not account for taxes, fees, or significant lifestyle changes.

Pros & Cons

Pros	Cons
Simple and easy to implement. Grounded in historical market analysis. Encourages disciplined withdrawals and budgeting. Adjusts for inflation, protecting purchasing power.	May be too conservative or aggressive based on future market conditions. Assumes a static portfolio allocation and withdrawal plan. Does not account for taxes, fees, or unexpected expenses. Not tailored to individual circumstances or goals.

Details

The 4% rule was introduced in the 1990s by financial planner William Bengen. Bengen analyzed historical market data to determine a safe withdrawal rate for U.S. retirees with a 50/50 mix of stocks and bonds. His research aimed to answer a crucial question: “How much can I withdraw each year and not run out of money?” His findings were later echoed and expanded upon by the Trinity Study—a landmark academic paper that cemented the rule’s relevance in financial planning.

What Kind of Management Applies the Rule?

The 4% rule is typically employed by individuals managing their own retirement investments, as well as by financial advisors helping clients plan for retirement. It is relevant for those relying on defined-contribution plans (like 401(k)s or IRAs), rather than pensions.

Conclusion

The 4% rule provides a simple, research-backed starting point for retirement planning. However, it is not a one-size-fits-all solution. Each retiree’s circumstances are unique, and prudent planning involves regular portfolio reviews and flexibility in response to economic changes. Consider the 4% rule as a foundational guideline rather than an ironclad guarantee.