The 4% Rule Explained: Safe Withdrawal Rates

The 4% rule is a retirement guideline that says you can withdraw 4% of your portfolio in your first year, then increase that amount with inflation each year, with a low historical risk of running out over 30 years. It comes from the Trinity study of US market history and implies you need about 25 times your annual expenses to retire.

In practice the rule does two jobs at once. It gives you a spending number once you have retired, and, read backwards, it gives you a savings target while you are still working. Multiply the income you want by 25 and you have the portfolio you are aiming for; the same arithmetic underpins the FIRE movement and the idea of a safe withdrawal rate. The rest of this guide explains where the number comes from, when 4% is too high, and why the smartest retirees treat it as a guide rather than a hard rule.

Where it comes from

The rule is based on historical US stock and bond returns. At a 4% starting withdrawal, a balanced portfolio survived almost every 30-year period in that data, which is reassuring but not a guarantee, since the future may differ from the past.

The key insight behind the rule is that you do not need your portfolio to keep growing forever, you only need it to outlast you. A roughly 50/50 to 60/40 split of stocks and bonds gave enough long-run growth to offset inflation while smoothing out the worst market crashes. The 4% figure is the starting withdrawal: in year one you take 4% of the balance, and every year after you raise the dollar amount by inflation, ignoring what the market does. That fixed, inflation-adjusted income is what makes the rule simple to follow.

Worked example. Spend $40,000 a year? Your FIRE number is 40,000 × 25 = $1,000,000. At a more conservative 3.5%, you would need about $1,143,000.

When to use a lower rate

The 4% figure was calibrated for roughly a 30-year retirement, so the longer or riskier your situation, the more a smaller starting rate buys you peace of mind. Several circumstances argue for trimming the rate below 4%.

The first is retiring young with a 40 to 50 year horizon, a much longer runway than the 30 years the rule was tested over, which raises the odds that a fixed withdrawal eventually outpaces the portfolio. The second is starting retirement in a period of high valuations or low expected returns, because the early years of withdrawals matter most and a weak first decade can do lasting damage. The third is simply wanting a larger safety margin, or intending to leave an inheritance rather than spend the portfolio down to zero. In each case, dropping to 3% or 3.5% meaningfully widens the cushion.

It is a guide, not a law

The smartest application is flexible: trim spending in poor market years and you can sustain a higher average rate. Rigidly withdrawing a fixed amount regardless of conditions is what puts portfolios at risk.

In the real world, retirees adjust. A retiree who cuts discretionary spending after a sharp market fall, delaying a big trip, trimming the budget for a year or two, gives the portfolio room to recover, and that flexibility historically supports a higher long-run withdrawal than a rigid fixed rule. It also matters that the 4% figure is a gross number: taxes and investment fees come out of it, so your real spendable income is lower. To translate a rate into a target portfolio, or to test a semi-retirement plan where part-time work covers some of your spending, the Barista FIRE calculator does the arithmetic for you.

Written by

Federico Romaldi

Co-Founder, Worthmap

Published: June 6, 2026

Federico is a co-founder of Worthmap, a wealth-intelligence platform built for serious investors. With a background in software engineering and a long-standing passion for value investing, he created Worthmap to bridge the gap between net-worth tracking and investment analysis.