The 4% Rule Explained (and When It Fails)

The 4% rule says you can withdraw 4% of your portfolio in the first year of retirement, then raise that dollar amount with inflation each year, and historically the money lasted at least 30 years. It comes from financial planner William Bengen's 1994 study of US stock and bond returns since 1926, later popularised by the 1998 "Trinity study".

Why it works

A balanced portfolio (roughly 50–75% stocks) has historically returned more than inflation over long periods. Withdrawing 4% leaves enough invested to recover from bad years.

When it can fail

• Longer retirements — early retirees with 40–50 years ahead often use 3.25–3.5%.
• Sequence-of-returns risk — a crash in the first few years does far more damage than one later.
• High fees — 1% in fees is a quarter of a 4% withdrawal.

Making it safer

Flexible spending (cutting withdrawals 10% after a bad year), a cash buffer of 1–2 years of spending, and part-time income all raise success rates dramatically.

Test your own numbers: how long will my money last.