Will your retirement savings last? The 4% rule explained
By Arpit Patel
“How much can I spend without running out?” is the question that defines retirement. The 4% rule is the famous first answer — useful, durable, and widely misunderstood. Here's what it really says.
What the 4% rule says
The rule comes from research (the well-known “Trinity study”) into how much a retiree could withdraw without depleting a portfolio over a long retirement. The finding: withdraw 4% of your starting balance in year one, then increase that dollar amount with inflation each year, and a balanced portfolio had a very high chance of lasting 30 years. On a $1,000,000 portfolio, that's $40,000 in the first year, adjusted upward for inflation thereafter.
The flip side: the 25× rule
Turn it around and you get a target. If you can spend 4% of your savings, you need roughly 25 times your annual spending saved to retire. Want $60,000 a year from your portfolio? You need about $1.5 million. This is the single most useful number for setting a retirement goal — multiply the income you want from investments by 25.
4% withdrawal and 25× savings are the same rule viewed from opposite ends. One tells you how much you can spend; the other tells you how much you need.
What it quietly assumes
The 4% rule isn't a law of nature — it rests on assumptions. It assumes a roughly 30-year horizon, a diversified portfolio with a meaningful stock allocation (often around 50–75% equities), and that you'll hold steady through downturns. Retire much earlier and your money has to last 40–50 years, which calls for a lower starting rate. Hold too little in stocks and the portfolio may not grow enough to outpace inflation over decades.
Sequence-of-returns risk
The biggest hidden danger isn't your average return — it's the order of returns. A bad market in the first few years of retirement, while you're also withdrawing, can permanently damage a portfolio in a way the same bad year later would not. This is sequence-of-returns risk, and it's why a fixed 4% can be too aggressive for someone who retires right before a downturn.
When to flex the number
| Your situation | Reasonable starting rate |
|---|---|
| Early retirement (40s–50s), 40+ year horizon | 3% – 3.5% |
| Traditional retirement (60s), ~30 years | ~4% |
| Later start or shorter horizon, flexible spending | 4.5% – 5% |
The smartest retirees don't withdraw a fixed percentage forever — they use dynamic withdrawals, trimming spending in bad years and allowing more in good ones. That flexibility is worth more than any single “right” rate, and it's the most reliable defense against running out.
Don't forget other income
Your portfolio rarely carries the whole load. Social Security, a pension, or part-time income reduces how much your savings must provide — which lowers the effective withdrawal rate on your investments and makes the money last longer. Model those streams alongside your balance to see the real picture.
Model your savings, withdrawals, returns, and Social Security to see how many years your money lasts — and what changing the withdrawal rate does.
Open the Retirement Drawdown Calculator →Frequently asked questions
What is the 4% rule for retirement?
Withdraw 4% of your portfolio in the first year of retirement, then adjust that dollar amount for inflation each year. Research found a balanced portfolio had a high chance of lasting 30 years at that rate. On $1,000,000 that's $40,000 in year one.
How much do I need to retire?
A common target is 25 times your desired annual spending from investments — the flip side of the 4% rule. For $60,000 a year from your portfolio, you'd aim for about $1.5 million. Other income like Social Security reduces what your savings must cover.
Is the 4% rule still safe?
It's a solid guideline, not a guarantee. It assumes a roughly 30-year horizon and a diversified, stock-heavy portfolio. Early retirees with longer horizons often use 3–3.5%, and using flexible (dynamic) withdrawals is more reliable than any fixed rate.
What is sequence-of-returns risk?
The risk that poor market returns early in retirement — while you're also withdrawing — permanently damage your portfolio more than the same poor returns later would. It's the main reason a fixed withdrawal rate can fail for someone who retires just before a downturn.