What Is the 4% Rule for Withdrawals in Retirement and How Much Can You Spend? (2024)

What Is the 4% Rule?

The 4% rule is a guideline that recommends retirees withdraw 4% of their retirement funds in the first year after retiring, and then remove the same dollar amount, adjusted for inflation, every year thereafter.

The rule is intended to supply a steady stream of income while maintaining an adequate overall account balance for use in future years. Assuming a reasonable rate of return on investment, the withdrawalswill consistprimarily of interest and dividends.

Experts disagree on whether the 4% withdrawal rate is the best option. Many, including the creator of the rule, say that 5% is a better rule for all but the worst-case scenario. Others caution that 3% may be safer in the long run.

Key Takeaways

  • The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and remove that dollar amount, adjusted for inflation, every year after.
  • The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
  • The rule was created using historical data on stock and bond returnsover the 50-year period from 1926 to 1976. Some experts suggest 3% is a safer withdrawal rate with current interest rates; others think 5% could be OK
  • Life expectancy plays an important role in determining a sustainable rate.

What Is the 4% Rule for Withdrawals in Retirement and How Much Can You Spend? (1)

Understanding the 4% Rule

The 4% Rule is a guideline used by some financial planners and retirees to estimate a comfortable but safe income for retirement.

An individual's life expectancy plays an important role in determining if the rate will be sustainable. Retirees who live longer need their portfolios to last longer, and their medical costs and other expenses can increase with age.

History of the 4% Rule

The concept of the 4% Ruleis attributed to Bill Bengen, a financial adviser in Southern California who created it in the mid-1990s, and has since complained that it has been over-simplified by many of its adherents. He said that the 4% rule was based on a "worst-case" scenario and that 5% would be a more realistic number.

The rule was created using historical data on stock and bond returns over the 50-year period from 1926 to 1976, focusing heavily on the severe market downturns of the 1930s and early 1970s.

Bengen concluded that, even during untenable markets, no historical case existed in which a 4% annual withdrawal exhausted a retirement portfolio in fewer than 33 years.

Accounting for Inflation

While some retirees who adhere to the 4% rule keep their withdrawal rate constant, the rule allows retirees to increase the rate to keep pace with inflation. Possible ways to adjust for inflation include setting a flat annual increase of 2% per year, which is the Federal Reserve's target inflation rate, or adjusting withdrawals based on actualinflation rates. The former method provides steady and predictable increases, while the latter method more effectively matchesincome to cost-of-livingchanges.

While the 4% Rule recommends maintaining a balanced portfolio of 50% common stocks and 50% intermediate-term Treasurys bonds, some financial experts advise maintaining a different allocation, including reducing exposure to stocks in retirement in favor of a mix of cash, bonds, and stocks.

Advantages and Disadvantages of the 4% Rule

While following the 4% rule can make it more likely that your retirement savings will last the remainder of your life, it doesn’t guarantee it.The rule is based on the past performance of the markets, so it doesn't necessarily predict the future. What was considered a safe investment strategy in the past may not be a safe investment strategy in the future if market conditions change.

There are several scenarios in which the 4% rule might not work for a retiree. A severe or protracted market downturn can erode the value of a high-risk investment vehicle much faster than it can a typical retirement portfolio.

Furthermore, the 4% Rule does not work unless a retiree remains loyal to it year in and year out. Violating the rule one year to splurge on a major purchase can have severe consequences down the road, as this reduces the principal, which directly impacts the compound interest that the retiree depends on for sustainability.

However, there are obvious benefits to the 4% Rule. It is simple to follow and provides for a predictable, steady income. And, if it is successful, the 4% Rule will protect you from running short of funds in retirement.



  • Requires strict adherence (doesn't respond to lifestyle changes)

  • Is based on a 'worst-case' scenario of portfolio performance

  • 5%, not 4%, may be a more realistic number

The 4% Rule and Economic Crises

Actually, the 4% Rule may be a little on the conservative side. According to Michael Kitces, an investment planner, it was developed to take into account the worst economic situations, such as 1929, and has held up well for those who retired during the two most recent financial crises.Kitces points out:

The 2000 retiree is merely "in line" with the 1929 retiree, and doing better than the rest. And the 2008 retiree—even having started with the global financial crisis out of the gate—isalreadydoing far better thananyof these historical scenarios! In other words, while the tech crash and especially the global financial crisis were scary, they still haven’t been the kind of scenarios that spell outright doom for the 4% Rule.

This is, of course, not a reason to go beyond it. Safety is a key element for retirees, even if following it may leave those who retire in calmer economic times "with a huge amount of money left over," Kitces notes, adding that "in general, a 4% withdrawal rate is really quite modest relative to the long-term historical average return of almost 8% on a balanced (60/40) portfolio!"

Meantime, some experts—pointing to the recent low interest rates on bonds and savings—suggest that 3% might be a safer withdrawal rate. The best strategy is to review your situation with a financial planner, starting with how much you have saved, what your current investments are, and when you plan to retire.

Read about Investopedia's 10 Rules of Investing by picking up a copy of our special issue print edition.

Does the 4% Rule Still Work?

The 4% rule was created to meet the financial needs of a retiree even during a worst-case economic scenario such as a prolonged market downturn. Many financial advisers say that 5% allows for a more comfortable lifestyle while adding only a little more risk.

How Long Will My Money Last Using the 4% Rule?

The 4% Rule is intended to make your retirement savings last for 30 years or more.

Does the 4% Rule Work for Early Retirement?

The 4% Rule isfocused on preparing for retirement at age 65. If you're hoping to retire early or expect to keep working past age 65, your long-term financial needs will be different.

What Is a 4% Rule Calculator?

You can use any online retirement withdrawal calculator, using the 4% rule as the amount you intend to withdraw annually. One example can be found at MyCalculators

The Bottom Line

For most people, managing their retirement savings is a balancing act. If they withdraw too much too fast, they'll risk running out of money. Not withdrawing enough money can deny them the full benefit of their hard-earned savings.

For those who want a rule of thumb to follow, the 4% Rule is an easy-to-use choice.

CorrectionJan. 20, 2022: An earlier version of this article misstated the type of bonds that might be included in a balanced portfolio of stocks and bonds. They are intermediate-term Treasury bonds, not immediate-term Treasury bonds.

What Is the 4% Rule for Withdrawals in Retirement and How Much Can You Spend? (2024)


What Is the 4% Rule for Withdrawals in Retirement and How Much Can You Spend? ›

The 4% rule is a popular retirement withdrawal strategy that suggests retirees can safely withdraw the amount equal to 4% of their savings during the year they retire and then adjust for inflation each subsequent year for 30 years.

How long will money last using 4% rule? ›

This rule is based on research finding that if you invested at least 50% of your money in stocks and the rest in bonds, you'd have a strong likelihood of being able to withdraw an inflation-adjusted 4% of your nest egg every year for 30 years (and possibly longer, depending on your investment return over that time).

How do you use the 4% rule for retirement? ›

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

Why the 4% rule no longer works for retirees? ›

Withdrawing 4% or less of retirement savings each year has long been a popular rule of thumb for retirees. However, due to high inflation and market volatility, the rule is less reliable now. Retirees will need to decrease their spending and withdrawal rate to 3.3% so they don't run out of money.

Is a 4 withdrawal rate still a good retirement rule of thumb? ›

Although market conditions have put the “four” back in the 4% rule, that's just the starting point for retirees crafting their withdrawal strategies. “The 4% rule is meant to be a rule of thumb and not a financial plan,” says Brendan McCarthy, head of retirement investing for Nuveen.

What are the flaws of the 4% rule? ›

The 4% rule is a reasonable baseline, but it also has serious drawbacks. Among them: Retirees often want to vary their spending during retirement. Many people don't retire for three decades. Market conditions affect how much you can safely withdraw.

How many people have $1000000 in retirement savings? ›

However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

What is a safe withdrawal rate for a 70 year old? ›

If the individual retires at age 65, that percentage is typically 5% for a single life and 4½% on a joint and survivor basis; the percentages go up to 6% and 5½% if the retirement age is 70.

What is the average 401k balance for a 65 year old? ›


At what age is 401k withdrawal tax free? ›

Once you reach 59½, you can take distributions from your 401(k) plan without being subject to the 10% penalty. However, that doesn't mean there are no consequences. All withdrawals from your 401(k), even those taken after age 59½, are subject to ordinary income taxes.

What is a good monthly retirement income? ›

Average Monthly Retirement Income

According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

What is the biggest mistake most people make in regards to retirement? ›

The Bottom Line

The worst retirement mistakes are probably not planning to retire at all, failing to take full advantage of retirement savings plans, mismanaging Social Security, making poor investment decisions and neglecting the non-financial side of retirement.

What is the average net worth of a 70 year old? ›

Average net worth by age
Age by decadeAverage net worthMedian net worth
4 more rows

What is a realistic retirement withdrawal rate? ›

The sustainable withdrawal rate is the estimated percentage of savings you're able to withdraw each year throughout retirement without running out of money. As an estimate, aim to withdraw no more than 4% to 5% of your savings in the first year of retirement, then adjust that amount every year for inflation.

Does the 4 percent rule include Social Security? ›

Additionally, the 4% rule doesn't consider other income sources such as pensions, Social Security, annuities or part-time work and income. “Consequently, depending on your situation, you may not need a 4% withdrawal rate to generate your desired retirement income,” Fricke notes.

How long will $4 million last in retirement? ›

Like any basic rule of thumb, this one comes with plenty of qualifications and exceptions, but it can be a useful place to start. Now, 4% of $4 million is $160,000, so as long as you expect your retirement to last for about 30 years and that amount sounds like enough-or more than enough-for you, you're in a good place.

Does the 4% rule work for early retirement? ›

The 4% rule can be a good start for retirees, but it most likely needs to be fine-tuned for the F.I.R.E. movement. The rule was conceived for a traditional retiree facing a retirement horizon of 30 years (Bengen, 1994), not for an early retiree who may spend over 50 years in retirement. 1 See Vanguard (2020a).

How long will money last using 5% rule? ›

The historical analysis shows that, over a 25-year retirement period, a 5.0% withdrawal rate has worked 90% of the time. On the other hand, if you are retiring at age 60 or have a family history of longevity, you may want to plan for a 35-year retirement.

How long will $900 000 last in retirement? ›

Yes, it is possible to retire very comfortably on $900k. This allows for an annual withdrawal of around $36,000 from age 60 to 85, covering 25 years. If $36,000 per year or $3,000 per month meets your lifestyle needs, $900k should be plenty for retirement.

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