MyWealthCheckThe 4% rule says that if you withdraw 4% of your investments in your first year of retirement, then raise that amount each year with inflation, your money should last at least 30 years. It’s the source of the famous “25 times your spending” FIRE number (1 ÷ 0.04 = 25).
It’s a useful starting point. It’s not a guarantee, and for a retirement that starts at 40 it needs some adjustments.
Where does the 4% rule come from?
In 1994, financial planner William Bengen looked at US stock and bond returns going back to 1926. He tested a simple plan: withdraw a fixed share of a 50/50 to 75/25 stock/bond portfolio in year one, then increase the withdrawal with inflation every year. The highest starting rate that survived every 30-year period in his data, including retiring just before the Great Depression or the high inflation of the late 1960s, was about 4%.
A 1998 study by three professors at Trinity University (often called the Trinity study) reached similar conclusions using a different method.
Why do early retirees use 3 to 3.5% instead?
The original research has three limits that matter if you stop working early:
- It assumed 30 years. Retire at 40 and plan to 90, and you need 50 years. The longer the horizon, the lower the safe starting rate, often around 3 to 3.5%.
- It used US data. The US had one of the best-performing stock markets of the 20th century. Studies of other countries’ markets have generally found lower safe rates.
- Inflation differs. Where inflation is higher, as in many emerging economies, spending grows faster and the money has to work harder.
In multiples of spending, that means:
| Withdrawal rate | FIRE number | If you spend 50,000 a year |
|---|---|---|
| 4% | 25 × yearly spending | 1.25 million |
| 3.5% | about 28.6 × | about 1.43 million |
| 3.25% | about 30.8 × | about 1.54 million |
| 3% | about 33.3 × | about 1.67 million |
What is sequence-of-returns risk?
The average return matters less than the order of returns. A 30% fall in your first year of retirement does far more damage than the same fall 20 years later, because you’re selling investments while they’re down and there’s less left to recover.
That’s why our calculators always show a first-year crash test: what happens to your plan if stocks drop 35% right after you stop working.
How can you make any withdrawal rate safer?
- Keep a cash and bond buffer. Holding several years of spending in safer assets (a bucket strategy) means you can skip selling stocks after a fall. The financial planner sizes these buckets for you.
- Be a little flexible. Cutting optional spending by 5 to 10% in bad years makes a large difference to how long the money lasts.
- Add other income. A pension, rent or part-time work later in life lowers what your investments must cover.
- Review every year. Re-run your numbers with your actual balances and spending, not the plan you made a decade ago.
Is 4% safe for a 40- or 50-year retirement?
For a traditional 30-year retirement, 4% has held up well historically. For an early retirement of 40 years or more, planning around 3 to 3.5% gives a meaningful extra margin, especially combined with a cash buffer and some spending flexibility.
Rather than picking a rule, you can size your FIRE number for your own plan age and assumptions. That’s what our FIRE calculator does, in any currency, and it shows the crash test alongside.
For education only, not financial advice. Read the disclaimer.