4% rule

The 4% rule (sometimes called the rule of 25[1]) is a widely-cited retirement spend-down rule-of-thumb, credited to William Bengen,[2] that says that a retiree can safely withdraw an inflation-adjusted 4% of their investments each year during a 30-year retirement. Since its publishing in the Journal of Financial Planning in 1994,[3] the rule has been widely discussed in retirement planning literature and popular media.[4][5]

The 4% rule was created by simulating 30-year retirement periods using the historical performance of the United States markets starting in 1926.[6] The analysis assumed the retiree's portfolio was in a tax free account composed of United States stocks and bonds.[2][7] Bengen picked 4% as the highest rate that never failed in the dataset.

In 1998, Bengen's rule was further supported and popularized by the Trinity study.[8]

Definition

The original formulation of the rule was:

Assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe.

— William Bengen, Determining Withdrawal Rates Using Historical Data

This version of the rule assumed the retirement portfolio was allocated between 50% bonds and 50% stocks and 25% bonds and 75% stocks. He used intermediate-term United States Treasury bonds to determine the bonds' historical returns and American large-cap stocks for stocks' returns. No taxes or fees were accounted for in the rule's analysis. Bengen defined "safe" to mean that in no 30-year rolling period did the portfolio run out of money.

In the Trinity study the rule was expressed as:

For stock-dominated portfolios, withdrawal rates of 3% and 4% represent exceedingly conservative behavior. At these rates, retirees who wish to bequeath large estates to their heirs will likely be successful

— Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable

The rule can alternately be described as "you need to save 25 times your annual expenses to safely retire".[9]

Criticism

A number of criticisms have been levied against the 4% rule. Some have suggested the rate is dangerously high[10] and others have warned that it will lead retirees to die with large unspent surpluses.[11]

Bengen's original analysis relied exclusively on United States domestic markets in the 1900s which was a period of unusually strong asset returns. Wade Pfau repeated Bengen's methodology with other developed countries' domestic markets and found that the 4% withdrawal rate was only safe in 4 of 14 countries.[12] Pfau estimated in 2020 that the safe withdrawal rate was 2.4%.[13]

The 4% rule's assumption of a constant real dollar withdrawal during retirement may be unrealistically high. Studies have shown that real spending tends to decline through retirement.[14]

Within the FIRE movement the 4% rule is a commonly used tool,[15] but those planning on retirements longer than 30 years may need to plan on withdrawal rates closer to 3%.[16]

Modern scholarly work on retirement spend down strategies focuses more on variable-withdrawal-rate due to these issues.[17]

Revisions

While the rule is popularly known as the "4% rule", Bengen has said that was a simplification of the paper's hypothetical 4.15% withdrawal rate.[18] In 2025, Bengen published the book A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More where he diversified his suggested portfolio allocation and increased the safe withdrawal rate to 4.7%.[19]

References

  1. ^ Christian, Rachel (2024-01-26). "The 25x Rule for Retirement: Definition and Examples". Bankrate. Retrieved 2026-02-25.
  2. ^ a b "What Is the 4% Rule for Withdrawals in Retirement?". Investopedia. Retrieved 2026-02-23.
  3. ^ "20 Years of Safe Withdrawal Rate Research – A Literature Review & Practical Applications". publications.investmentsandwealth.org. Retrieved 2026-02-23.
  4. ^ S., Scott, Jason; F., Sharpe, William; G., Watson, John (2008-04-01). "The 4% Rule - At What Price?". Journal of Investment Management. Archived from the original on 2025-12-22.{{cite journal}}: CS1 maint: multiple names: authors list (link)
  5. ^ Choi, James J. (November 2022). "Popular Personal Financial Advice versus the Professors". Journal of Economic Perspectives. 36 (4): 167–192. doi:10.1257/jep.36.4.167. ISSN 0895-3309.
  6. ^ Bengen, William P (Mar 2004). "Determining Withdrawal Rates Using Historical Data". Journal of Financial Planning. 17 (3): 64–73 – via Proquest.
  7. ^ "Fire investing & the 4% rule for early retirement | Vanguard". investor.vanguard.com. Retrieved 2026-02-23.
  8. ^ "40th Anniversary Highlight: To Think, Feel, Act, and Learn Like a CFP | Financial Planning Association". www.financialplanningassociation.org. 2019-02-01. Retrieved 2026-02-25.
  9. ^ "The 'Rule of 25' for Retirement Planning". Kiplinger. 2025-04-26. Retrieved 2026-02-28.
  10. ^ Finke, Michael; Pfau, Wade D.; Blanchett, David M. (June 2013). "The 4 Percent Rule Is Not Safe in a Low-Yield World" (PDF). Journal of Financial Planning.
  11. ^ Scott, Jason S.; Sharpe, William F.; Watson, John G. (April 2008). "The 4% Rule—At What Price?" (PDF). {{cite journal}}: Cite journal requires |journal= (help)
  12. ^ Pfau, Wade D. (December 2010). "An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?" (PDF). Journal of Financial Planning.
  13. ^ "Wade Pfau: Pandemic Tears Up 4% Rule". thinkadvisor.com. Retrieved 2026-02-28.
  14. ^ Kitces, Michael (2014-04-30). "How Total Spending Declines Over Time In Retirement". kitces.com. Retrieved 2026-02-28.
  15. ^ "The FIRE Movement - Early Retirement Planning". www.texasbaycu.org. Retrieved 2026-03-01.
  16. ^ "Safe Withdrawal Rates for Early Retirees: Does The 4% Rule Work Across a 40 to 50 Year Horizon". ChooseFI. 2025-07-18. Retrieved 2026-03-01.
  17. ^ McQuarrie, Edward F. (February 2025). "How the 4% Rule Would Have Failed in the 1960s: Reflections on the Folly of Fixed Rate Withdrawals". SSRN.
  18. ^ "The 4% Rule". Bill Bengen's New Book. Retrieved 2026-02-25.
  19. ^ "Supercharging the '4% rule' for a richer retirement". Morningstar. Retrieved 2026-02-25.
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