The 4% Rule Explained: How Much Can You Withdraw in Retirement?

Updated November 8, 2026

The 4% rule is the best-known shortcut in retirement planning. It is a helpful starting point, but it is often repeated without the assumptions behind it.

What the rule says

In your first year of retirement, withdraw 4% of your savings. Each year after that, take the same dollar amount adjusted for inflation. On a $1,000,000 portfolio, that means $40,000 in year one. If inflation is 3%, you would take $41,200 in year two, regardless of how markets did.

Where it came from

The rule comes from research published in 1994 by financial planner William Bengen. He tested withdrawal rates against historical US market returns and looked for a rate that survived even the worst periods over 30 years, using a portfolio of stocks and bonds.

Using it to set a savings target

Turn the rule around to estimate how much you need:

Target savings ≈ Annual income needed from savings × 25

Only count what your savings must provide. If you want $60,000 a year and expect $22,000 from Social Security or a pension, your savings need to cover $38,000:

$38,000 × 25 = $950,000 in today's dollars

The limits of the rule

It was built for about 30 years. If you retire early, your money may need to last much longer, and a lower rate may be safer.
It relies on past US returns. Future returns may be lower or higher.
It assumes a mix of stocks and bonds. A very conservative portfolio may not support the same withdrawals.
It ignores taxes and investment fees. Money from a traditional 401(k) or IRA is generally taxed when withdrawn.
It is rigid. Real retirees tend to cut back after a bad year, and their spending often changes as they age.

Sequence of returns risk

Two retirees can have the same average return and very different results. If markets fall sharply early in retirement while you are withdrawing money, you sell more investments at low prices, and those shares cannot recover. The same drop 20 years later does much less harm. This is the main risk that the 4% rule tries to survive.

Ways to make withdrawals safer

Be flexible. Skipping the inflation raise after a bad market year can help a lot.
Keep a cash reserve so that you do not have to sell stocks during a downturn.
Delay Social Security, if you can, since monthly benefits rise for each year you wait up to age 70.
Plan for health care, which can be a major expense, particularly before Medicare at 65 and for long-term care.

A rule of thumb is a place to start. As retirement gets closer, a detailed plan built on your own expenses, taxes and income sources is worth the effort, and a fee-only planner can help with it.

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This article is general information, not financial, tax, legal or insurance advice. Figures are illustrative examples.