The 4% Rule: What It Is and Why It Matters
The 4% rule states that if you withdraw 4% of your investment portfolio in the first year of retirement, then adjust that amount for inflation each subsequent year, your money has a very high probability of lasting at least 30 years.
The rule is derived from the Trinity Study, which analysed historical US market data and found that a 4% initial withdrawal rate from a diversified stock/bond portfolio survived virtually every 30-year period in history — including the Great Depression and stagflation of the 1970s.
The 4% rule implies a simple formula for your retirement target: multiply your annual expenses by 25. If you spend $40,000/year, you need $1,000,000 invested. If you spend $60,000/year, you need $1,500,000.
Important caveats: the original study assumed a 30-year retirement. Someone retiring at 35 may need their money to last 50+ years, requiring a more conservative 3-3.5% rate. International market returns have historically been somewhat lower than US returns.
Dynamic withdrawal strategies — adjusting spending based on portfolio performance — can improve outcomes significantly. Cutting withdrawals by 10-20% during bear markets dramatically increases portfolio survival probability.
The 4% rule is a useful starting framework, not a rigid prescription. Your specific situation — retirement length, flexibility, other income sources, risk tolerance — should inform your personal withdrawal strategy.
Richify Tip
Richify's AI agents model multiple withdrawal scenarios for your situation, stress-testing your plan against historical market sequences so you can retire with confidence.
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