4% Rule Calculator

What the 4% rule says

The 4% rule is a heuristic for how much a retired person can draw from a portfolio each year without it running out before the end of a 30-year retirement. Principal is often drawn down heavily along the way; what the rule targets is that the balance survives the horizon, not that it stays intact. The rule also assumes withdrawals rise with inflation each year and a portfolio holding both stocks and bonds. Historical testing found the 4% rate survived nearly every 30-year window in the data, which is how it became a default planning figure. This calculator applies whatever rate is entered to whatever balance is entered, and does not test any of it.

Where the rule originated

The 4% figure emerged from William Bengen's work in the 1990s and was examined further by the Trinity Study (Cooley, Hubbard and Walz), which tested withdrawal rates against historical market data to see which survived the worst 30-year sequences. The Trinity Study reported that success rates fell as the rate rose above 4%, with results varying by the stock-and-bond mix tested. The 4% figure became the widely quoted default because it sat between sustainability and spending capacity in the results reported.

Why the rule is a starting point, not a guarantee

Past performance does not determine future results. The 4% rule describes historical outcomes, not future ones. Low bond yields and high equity valuations have led some researchers to put the figure closer to 3% to 3.5% for new retirees. Longer retirements need lower rates and shorter ones can carry higher rates, because the horizon is what the rate was solved against. Strategies that cut withdrawals in poor years have been found to sustain higher average rates than a fixed one. The calculator applies any rate entered; which rate fits a given situation is outside what it models.

A worked example

A 1,000,000 portfolio at a 4% rate gives an annual withdrawal of 40,000, which is 3,333.33 a month, 769.23 a week or 109.59 a day, and would last 25 years drawn at that level with no growth at all, whereas the 30-year horizon the rule was solved against assumes the balance keeps earning. Scaling the portfolio to 2,500,000 lifts the annual figure to 100,000; dropping it to 500,000 gives 20,000, which would leave a gap at many spending levels unless topped up from a state or workplace pension, other income, or continued earnings. Those figures hold for 30 years under the rule's assumptions, not indefinitely.

How the monthly equivalent compares with a monthly budget

Retirement spending happens monthly, so the monthly equivalent is the figure that compares directly with a monthly budget. A 4% rate on a 1,000,000 portfolio is 3,333 a month: that sits below a 5,000 monthly outgoing and above a 2,500 one. The calculator returns the monthly, weekly and daily equivalents so the comparison needs no conversion.

Variable withdrawal strategies

The basic rule holds withdrawals fixed in real terms, adjusting only for inflation. Other approaches vary the amount with market performance. Guardrail strategies cut spending when the portfolio falls below a set band and raise it when the portfolio grows. Flexible-spending approaches trim discretionary items in down years. Floor-and-ceiling approaches set a minimum and a maximum and move between them. Research on these variable methods has generally found they support higher average withdrawal rates than a fixed rule, in exchange for spending that changes from year to year.

How the rule handles sequence-of-returns risk

A portfolio that meets poor returns in the first five to ten years of retirement faces sequence-of-returns risk: withdrawals taken during the fall leave a smaller base, so later strong markets act on less capital and may not fully offset the early loss. The 4% rate survived historical worst-case sequences because it was set low enough to absorb early bad years. Higher rates are more exposed to the same risk. One approach some retirees take is holding a period of expenses in cash or short-term bonds at the start, so the portfolio need not be sold into a falling market for immediate spending.

What the calculator does not model

Inflation adjustment over time: the rule assumes the withdrawal rises each year, so the actual amount grows rather than staying at the figure shown here. The tax treatment of the account the money is held in, which differs by country. Mandatory drawdown rules that apply to some retirement account types in some countries. State or workplace pension income and other money arriving from outside the portfolio. Large unexpected costs such as long-term care. And market movement itself, which changes the balance and therefore the amount any rate produces. The calculator gives the starting figure; the rest is what retirement planning adds to it.

What changes the rate researchers arrive at

The rate researchers arrive at moves with the inputs to their testing. A longer horizon lowers it, because the balance has to survive more years of withdrawals. Elevated valuations at the start lower it, because the early part of the sequence carries more weight in the testing. A shorter horizon raises it. Non-portfolio income raises it in effect, because less of the spending has to come from the balance at all. Willingness to cut spending in poor years raises it, because the fixed-withdrawal assumption is what the rate was solved against. None of this is modelled here: the calculator applies the rate entered.

How the rule is commonly misread

The rule is a historical result rather than a certainty, and reading it as a guarantee is a common source of confusion. It was solved against a 30-year horizon, so it says little about materially longer or shorter ones. It was tested across a range of stock-and-bond mixes, so results differ by allocation, and a portfolio built on something other than those two is not what the headline figure describes. The 4% applies to the balance at the start: later withdrawals follow inflation rather than being recalculated as 4% of the current balance. And it describes the portfolio in isolation, so income arriving from elsewhere changes how much the portfolio itself has to produce.