The 4 Percent Rule

What Is the 4 Percent Rule?

The rule comes from research by financial planner William Bengen, who studied stock and bond returns across every market cycle from 1926 onward. He found that no portfolio ran out of money over a 30 year retirement when the retiree withdrew 4% of the starting balance in year one and then increased the withdrawal with inflation each year. If you retire with $1,000,000, the rule says you can spend $40,000 in your first year, then roughly $41,200 the next year at 3% inflation, and so on.

How Does the Math Work?

The withdrawal is always a percentage of your starting balance, not your current balance. Retire with $500,000 and the first year withdrawal is $20,000, which works out to $1,667 per month. The same 4% rule applied monthly is your nest egg times 0.04 divided by 12. In this calculator, the Monthly Income (4% rule) figure is exactly that: your projected total at retirement, adjusted for inflation, with 4% withdrawn each year and spread across 12 months.

Why 4% Instead of 5% or 6%?

Higher withdrawal rates run out of money more often. Bengen's research showed that a 5% rate started to fail in some market cycles, and 6% or more failed in many. The 4% rate survives the worst historical sequences of returns, including the Great Depression and the 1970s bear markets. The tradeoff is spending: a 4% rate supports less income today in exchange for a much lower chance of running dry.

When Does the 4 Percent Rule Fall Short?

The rule was built for a 30 year retirement. Retire early at 55 and your money may need to last 40 years, which calls for a more conservative rate near 3% or 3.5%. A heavy stock allocation can push returns up but adds volatility, and a bad market in your first few retirement years hurts far more than a bad market later. Fees also matter, since every 1% in fees quietly cuts into the withdrawal that stays in your pocket.

How to Use It in This Calculator

Enter your age, savings, contributions, and expected return, and the calculator shows your monthly income from the 4% rule plus any Social Security you expect. Then add your expected monthly spending. If your income beats your spending, you have a surplus. If it falls short, your withdrawal rate is effectively higher than 4%, which raises your risk of running out of money.