Definition
The "4% rule" (William Bengen, 1994) found that a 4% initial withdrawal rate, adjusted annually for inflation, survived every 30-year period in U.S. history. This assumes a balanced portfolio (50-75% stocks). Updated research suggests 3.5-4.5% depending on asset allocation, flexibility, and market conditions. The withdrawal rate is one of the most important retirement planning variables.
functions Formula
Annual Withdrawal = Portfolio × Safe Withdrawal Rate
lightbulb Example
A $1.5M portfolio using a 4% withdrawal rate: first-year withdrawal = $60,000/year ($5,000/month). Adjusted for 3% inflation: year-2 withdrawal = $61,800. This rate has historically sustained portfolios for 30+ years.
Pro Tip
Being flexible with withdrawals (reducing by 10-20% in bear markets) dramatically improves portfolio survival probability.
verified_user Key Points
- 4% rule is the traditional benchmark
- Assumes 30-year retirement and balanced portfolio
- Lower rates (3.5%) for longer retirements or conservative assumptions
- Flexibility to reduce spending in bad years improves sustainability