The 4% rule is a simple guideline for how much you can withdraw from a portfolio each year without running out too soon: withdraw 4% of your savings in the first year of retirement, then raise that dollar amount each year with inflation.
It comes from a 1994 study by financial planner William Bengen, who tested withdrawals against historical US market data. With a mix of stocks and bonds, a 4% initial withdrawal adjusted for inflation lasted at least 30 years in every period he studied, including the worst ones.
Following the rule means targeting 25 times the yearly income you want from your savings:
| Target income from savings | Per year | Savings needed (× 25) |
|---|---|---|
| $500 a month | $6,000 | $150,000 |
| $1,000 a month | $12,000 | $300,000 |
| $1,500 a month | $18,000 | $450,000 |
| $2,000 a month | $24,000 | $600,000 |
Before taxes. This income comes on top of any pension or Social Security benefits.
Example: $500,000 in savings, $20,000 withdrawn in year one (4%), then increased 2% a year for inflation:
| Average annual return | Withdraw 4% ($20,000) | Withdraw 5% ($25,000) |
|---|---|---|
| 3% | ≈ 30 years | ≈ 23 years |
| 4% | ≈ 36 years | ≈ 27 years |
| 5% | ≈ 48 years | ≈ 32 years |
| 6% | over 80 years | ≈ 42 years |
Same return every year, 2% inflation, before fees and taxes. Years until the balance runs out.
Moving from 4% to 5% shortens the timeline sharply. In real markets, the order of returns matters too: a big drop early in retirement hurts far more than one late in retirement. That's called sequence-of-returns risk.
Turn on the Retirement panel: the simulator finds the "sustainable" and "maximum" monthly withdrawal, and the Monte Carlo mode estimates the risk of running out.
Open the simulator →