Withdraw 4% annually to last 30 years
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4% rule
Withdraw 4% annually to last 30 years
The 4% rule, also known as the rule of 25, was created by simulating 30-year retirement periods using historical US market performance starting in 1926. William Bengen, who published the rule in 1994, chose 4% as the highest rate that never failed in the dataset. The rule has been widely discussed in retirement planning literature and popular media since its publication.
The 4% rule assumes that a retiree's portfolio is in a tax-free account composed of US stocks and bonds. Bengen's analysis aimed to determine a safe withdrawal rate that would sustain a retiree's savings for 30 years. The rule has been further supported and popularized by the Trinity study in 1998.
Example
A retiree with $1 million in retirement savings can withdraw $40,000 annually (4% of $1 million) for 30 years, adjusting for inflation.
Understanding the 4% rule helps retirees plan their savings and withdrawals to ensure their retirement funds last for 30 years.
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Educational content, not financial advice.
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