The 4% Rule
It's the single number behind almost every FIRE calculation you've seen — but almost nobody explains where it actually comes from.
What Is It
The 4% Rule says that if you withdraw 4% of your investment portfolio in your first year of retirement, then adjust that dollar amount for inflation every year after, your money has historically had a very high chance of lasting at least 30 years — even through some genuinely bad markets. It comes from a 1994 study by financial advisor William Bengen, later expanded by the "Trinity Study," which tested this withdrawal rate against rolling 30-year periods throughout U.S. market history.
Why It Matters
This one number is the entire foundation of the "FIRE number" math you'll see everywhere in this community. If 4% is the safe withdrawal rate, then the amount you need saved to retire is simply your annual expenses divided by 4% — or, said another way, 25 times your annual spending.
Worth knowing: the 4% Rule isn't a guarantee for every situation. Actual outcomes depend on the market conditions when you retire, how flexible your spending can be, and how long your retirement lasts — 30 years was the original study's assumption, and a longer retirement changes the math. Even Bengen himself later revisited his own research and suggested 4.7% might be appropriate for well-diversified portfolios over 30-year retirements — a good reminder that this is a well-tested guideline, not a fixed law. Think of it less as a precise formula and more as a framework — a reasonable, historically-tested goalpost for estimating financial independence, not a promise of exactly how your own retirement will play out.
Quick Example
If you spend $40,000 a year, the 4% Rule says you'd need roughly $1,000,000 saved to withdraw that $40,000 (4% of $1M) in year one, then adjust for inflation from there.
Try It Yourself
The 4% Rule is just a starting point. RetireSmart lets you test it against your own numbers — or dial in a completely different withdrawal rate — using real historical market scenarios, so you're not just trusting the framework, you're seeing how it actually holds up for your situation.
↗ retiresmart.borrowingbetter.com 🔥Test the 4% Rule — or Your Own Rate
Monte Carlo simulation, income events, and year-by-year planning against real market scenarios.