The 4% Rule
A simple rule of thumb for turning a retirement portfolio into a sustainable income.
The 4% rule suggests that you can safely withdraw 4% of your portfolio in the first year of retirement, then adjust that amount each year for inflation, with a high probability that your money will last 30 years.
It was born from the Trinity Study, which tested historical U.S. market returns across rolling 30-year periods. A balanced portfolio of stocks and bonds survived most scenarios when withdrawals stayed near 4%.
Quick example
$1,000,000
$40,000/year
~$3,333/month
$750,000
$30,000/year
~$2,500/month
$500,000
$20,000/year
~$1,667/month
Why it works
Portfolio survival
By keeping withdrawals modest, you give your portfolio a chance to recover from market downturns and continue compounding over time.
A planning anchor
The rule makes retirement planning concrete: multiply your desired annual income by 25 to estimate the portfolio you need.
When to adjust it
Early retirement
If you retire before your mid-60s, your money may need to last 40+ years. Many planners choose a safer 3.5% or even 3% withdrawal rate.
High valuations or low bond yields
When expected returns are lower, the historical 4% success rate may drop. A lower starting withdrawal can improve safety.
Flexible spending
Cutting discretionary spending during a market crash can extend a portfolio far more than a fixed 4% rule predicts.