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The 4% rule, explained simply
Take 4% of your savings in your first year of retirement, then raise that dollar amount with inflation each year. Historically, that has lasted about 30 years.
How much 4% gives you
| Savings | First-year withdrawal (4%) | Per month |
|---|---|---|
| $250,000 | $10,000 | $833 |
| $500,000 | $20,000 | $1,667 |
| $750,000 | $30,000 | $2,500 |
| $1,000,000 | $40,000 | $3,333 |
| $1,500,000 | $60,000 | $5,000 |
Where it comes from
In 1994, financial planner William Bengen tested every 30-year stretch of U.S. market history. Starting with 4% and raising it for inflation, a mix of stocks and bonds never ran out in 30 years, even through the worst periods. That became known as the 4% rule.
Its limits
- It's built for 30 years. If you retire at 55, you may need your money to last 40 years or more.
- It ignores your other income. Social Security and pensions mean you may need to take out less.
- Real spending changes. Many people spend more early in retirement and on health care later.
- Taxes and fees come out too. Money taken from a traditional IRA or 401(k) is usually taxed.
Check your own plan instead of a rule of thumb. Our calculator uses your savings, spending, Social Security and investment mix, and shows your chance of lasting to 90.
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