One of the most important questions in retirement planning is simple but crucial: How much can I safely spend from my savings each year? Spend too much, and you'll run out of money. Spend too little, and you'll miss out on enjoying the retirement you worked for. The 4% rule is a time-tested framework that helps answer this question—but it's not a one-size-fits-all solution.
What Is the 4% Rule?
The 4% rule is a retirement guideline that suggests you can withdraw 4% of your portfolio in your first year of retirement, then adjust that amount for inflation each year after. For example:
- Portfolio value: $1,000,000
- First-year withdrawal: $40,000 (4% of $1,000,000)
- Next year: Adjust for inflation (e.g., $41,200 if inflation was 3%)
- And so on throughout retirement
The idea is that a 4% withdrawal rate should allow your portfolio to last 30+ years without running out of money—even through market downturns. If inflation averages 3% and your portfolio returns 7% annually, the math generally works out.
Key Point: The 4% rule assumes a balanced portfolio (stocks and bonds), a 30-year retirement, and historical average market returns. Your situation may differ.
Where Did the 4% Rule Come From?
The 4% rule originates from a 1994 study by William Bengen, a financial advisor who analyzed historical stock and bond returns dating back to 1926. He looked for the highest withdrawal rate that would have survived every 30-year period in that historical data—even during the Great Depression. His conclusion: 4% was the "safe" threshold.
This research became the foundation for retirement planning advice. Later studies refined it, but the 4% benchmark remains widely respected—though it's increasingly debated as markets and lifespans change.
Understanding Safe Withdrawal Rates
The 4% rule is just one point on a broader spectrum of safe withdrawal rates. Here's how the risk changes as you move:
| Withdrawal Rate | Annual Income (on $1M) | Risk Level |
|---|---|---|
| 2–3% | $20,000–$30,000 | Very conservative; likely to never run out |
| 4% | $40,000 | Moderate; historically safe for 30+ years |
| 5% | $50,000 | Higher risk; increased chance of running short |
| 6%+ | $60,000+ | High risk; significant likelihood of depletion |
The farther above 4% you go, the more vulnerable you are to sequence-of-returns risk (hitting a bear market early in retirement) or living longer than expected.
When Might You Adjust Your Rate?
The 4% rule isn't rigid. You might use a different rate depending on your situation:
- Lower rate (2–3%): Retiring very early (before 50), expecting a long retirement, or wanting a financial safety cushion
- Higher rate (5–6%): Retiring later (70+), expecting a shorter retirement, or comfortable with higher risk
- Flexible spending: Cut spending in down market years; increase in up years
Using MyMoneyRunway to Test Your Withdrawal Rate
Rather than guessing whether your withdrawal rate is safe, you can run scenarios with our calculator. Here's how:
- Enter your savings amount and timeline
- Input your expected monthly spending
- The calculator shows your withdrawal rate (as a percentage)
- See how many years your money lasts—with and without Social Security
- Run different scenarios: What if you spend $500 less? What if you delay retirement 2 years? What if markets return 5% instead of 7%?
The calculator will flag if your withdrawal rate exceeds 6%, giving you a clear warning signal. This hands-on approach beats guessing.
Try the CalculatorThe Bottom Line
The 4% rule is a useful starting point, not a rule etched in stone. If your withdrawal rate lands at 3–4%, you're in solid shape. If it's creeping toward 6% or higher, it's time to adjust: work a bit longer, save more now, or plan to spend less in retirement.
The goal isn't to follow the 4% rule perfectly—it's to understand your own retirement math, test different scenarios, and make intentional choices. That's where real confidence in retirement comes from.