The 4% Rule Calculator
Estimate your sustainable annual retirement withdrawal based on your investment portfolio.
Your Retirement Savings
The 4% rule is a common guideline, but you can adjust this.
Estimated First-Year Withdrawal
$40000.00
This is the amount you could potentially withdraw in the first year of retirement, adjusted for inflation in subsequent years.
Understanding the 4% Rule
The 4% rule is a widely cited guideline for retirement planning, particularly for those aiming for financial independence and early retirement (FIRE). It suggests that retirees can safely withdraw 4% of their initial investment portfolio value each year, adjusted for inflation, without running out of money over a 30-year retirement period.
Origin and Basis:
The rule originated from a 1994 study by financial advisor William Bengen, who analyzed historical market data (stocks and bonds) to determine the highest withdrawal rate that would have sustained a portfolio for at least 30 years, even through market downturns. His research indicated that a 4% initial withdrawal rate had a very high success rate.
Key Assumptions and Considerations:
- Diversified Portfolio: The rule assumes a diversified portfolio of stocks and bonds (e.g., 50-75% stocks, 25-50% bonds).
- 30-Year Retirement: It's primarily designed for a retirement period of around 30 years. For longer retirements, a slightly lower withdrawal rate might be safer.
- Inflation Adjustment: The initial withdrawal amount is adjusted upwards each year to account for inflation, maintaining your purchasing power.
- Historical Data: The rule is based on past market performance, which is not a guarantee of future results.
Why It's a Popular Guideline:
Simplicity
It provides a simple, easy-to-understand target for how much you need to save for retirement.
Financial Independence
It's a cornerstone for the FIRE (Financial Independence, Retire Early) movement, offering a clear path to quitting traditional work.
Flexibility
While 4% is the guideline, you can adjust your withdrawal rate based on market performance and personal needs.
Stress Reduction
Having a clear withdrawal strategy can reduce anxiety about outliving your savings in retirement.
Not a Guarantee: The 4% rule is a guideline, not a guarantee. It's crucial to regularly review your financial plan and adjust your withdrawal strategy based on market conditions and your personal circumstances.