How the 4% Rule Works in Retirement

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When you're planning for your income and needs in retirement, there are a few rules of thumb you might hear. One of them is known as the "4% rule." This rule can be helpful by making your planning simple. In practice, though, it may not always work.

Key Takeaways

  • There are many tactics you can use to plan for your income needs after you retire.
  • The 4% rule states you can withdraw 4% of your portfolio during the first year after you retire.
  • The 4% rule is good as a general guideline, but it's best to use more precise methods to decide how much money to withdraw each year after you retire.

What Is the 4% Rule?

The 4% rule refers to how much money you withdraw each year after you retire. It states that you should use no more than 4% of the value of your portfolio of stock and bonds in the first year after you stop working.

For example, if you have $100,000 when you retire, the 4% rule would say you could withdraw about 4% of that amount. That would be $4,000 in the first year of retirement.

The percentage you withdraw would stay the same, but the amount you take out would change each year with inflation. As a result, your portfolio should last you at least 30 years.


The 4% rule assumes that when you retire, your portfolio allocation is 50% stocks and 50% bonds.

Where Did the 4% Rule Come From?

Some sources credit Bill Bengen with the creation of the 4% rule in 1994. Whatever its origins, the 4% rule became popular after a paper titled "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable" was published in 1998. This paper is often known as the "Trinity Study" because three finance professors at Trinity University authored it.

The 4% rule has become quoted as a “safe withdrawal rate” to use in retirement, but this isn't actually what the Trinity Study said. Some of the points the paper made are:

  • Most retirees could benefit from having at least 50% of their portfolios made up of common stocks.
  • If you want CPI-adjusted withdrawals after you retire, you need to have a much lower withdrawal rate from your starting portfolio.
  • If your portfolio is more than 50% stocks, "For stock-dominated portfolios, withdrawal rates of 3% and 4% represent exceedingly conservative behavior."

Updates to the Research

The authors of the Trinity Study published updated research in the Journal Of Financial Planning in 2011. The new article was called "Portfolio Success Rates: Where to Draw the Line." Although the paper was updated, it still drew the same conclusions. The new research stated:

“The sample data suggest that clients who plan to make annual inflation adjustments to withdrawals should also plan lower initial withdrawal rates in the 4% to 5% range, again, from portfolios of 50% or more large-company common stocks, to accommodate future increases in withdrawals."

Wade Pfau, an academic who focuses on retirement income, commented on the 4% rule in his Retirement Researcher blog. A few of the points Dr. Pfau made were:

  • The effect of taxes on the 4% rule
  • The 4% rule has not worked as well in other countries as it has in the United States.
  • The 4% rule assumes that retirement will last for 30 years, but there is a good chance many retirees will live longer than that after they stop working.

Risks of the 4% Rule

The 4% rule can give you an idea of how much income your retirement savings can provide. For every $100,000 you have invested, you can probably withdraw about $4,000 to $5,000 per year. This won't be true in every situation, though. If you follow the 4% rule too strictly, you could run into trouble.

Mix of Investments

Getting the result that the 4% rule promises depends on how you have invested your savings. The 4% rule assumes you have about 50% of your portfolio in stocks, such as a diverse mix of stock index funds.

This mix would mean that your return matches the overall market. If your portfolio is set up differently, though, your rate of return could be very different. You might be able to withdraw more or less.


This rule also does not account for taxes. If you withdraw $4,000 from an IRA, you will pay federal and state taxes on that amount. Once you've paid taxes, that $4,000 may give you relatively less spending money.

The 4% rule can be risky if you think of it as a hard-and-fast rule. When you retire, it's best to take these “rules” as general guidelines. How you handle your money should be unique to your own circumstances and needs.

Should You Use the 4% Rule?

The 4% rule is a good guideline to help you as you plan your retirement savings. It might not be the best system, though, to follow once you retire.

Your plan should be based on many factors, including:

  • All of your other expected sources of income
  • What types of investments you have
  • How long you can expect to live
  • What your tax rate might be after you retire

Your needs will also change from year to year once you stop working. Some years, you may need to withdraw more due to travel or unexpected medical bills. Other years, you might need less.

The 4% rule also becomes useless once you reach age 72, which is when you have to start taking withdrawals from your IRAs, known as "required minimum distributions," or RMDs. These RMDs are based on a formula, which will require you to take more than 4% of your remaining account value as you get older. Each year as you get older, you must take out a higher amount. Granted, you don’t have to spend the money, but you do have to withdraw it from the IRA, which means paying taxes on it.

Does It Still Work as a Guideline?

In 2013, Michael Finke, Wade Pfau, and David Blanchett published "The 4 Percent Rule Is Not Safe in a Low-Yield World." In it, they argued:

  • The 4% rule has been successful in the U.S., but that may be the exception rather than the rule.
  • There should be more to your retirement plan than just how much money you can take out of an investment portfolio each year.
  • When interest rates are low, 4% might not be a smart rate of withdrawal.

This paper suggests that current retirees may need a different strategy. The 4% rule was based on historical data, which might not apply anymore.

The 4% rule may still work as a guideline to help you guess how far your money can stretch after you stop working, but your full retirement plan should be based on more than a single rule.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Retail Investor. "Determining Withdrawal Rates Using Historical Data." Pages 173-174.

  2. American Association of Individual Investors. "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable." Page 21.

  3. Financial Planning Association. "Portfolio Success Rates: Where to Draw the Line."

  4. Retirement Researcher. "How Do Taxes Affect the 4% Rule?"

  5. Retirement Researcher. "Does the 4% Rule Work Around the World?"

  6. Retirement Researcher. "Should You Plan on Your Retirement Lasting 30 Years or 40?"

  7. Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."

  8. Financial Planning Association. "The 4 Percent Rule Is Not Safe in a Low-Yield World."

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