Guide · Updated 2026-05-08
The 4% rule: where it came from, why it works, and what's changed in 2026
By Yi Liu · Updated May 8, 2026 · 14 min read
The 4% rule is a rule of thumb that says you can withdraw 4% of your starting retirement portfolio in year one, adjust that dollar amount for inflation each year after, and have a very high probability of not running out of money over a 30-year retirement. It was never meant to be an iron law — and in 2024–2025 its own author, Bill Bengen, raised his number to 4.7%, while Morningstar cut theirs to 3.7% for 2025. This guide walks through where the rule came from, the math that made it famous, and what the 2026 revisions actually mean for your plan.
Key takeaways
- 4% rule: withdraw 4% of starting portfolio year-one, then adjust that dollar amount by CPI every year.
- Trinity Study backtest: 95%+ 30-year success rate on a 50/50 US stock/bond mix.
- 2024–25 updates diverge: Bengen raised to 4.7%, Morningstar cut to 3.7%, Vanguard says 3.5–4.5%.
- For 40+ year FIRE horizons, most research recommends 3.25–3.5% plus dynamic guardrails.
Answer box
How the 4% rule works: take 4% of your portfolio in year one (so $40,000 on a $1M portfolio), then increase that dollar amount by CPI each subsequent year — never recalculate off the current balance. On a 50/50 US stock/bond mix, this rule had a 95%+ 30-year success ratein the original Trinity Study backtest (1926–1995). Bengen's 2024 update puts the safe number at 4.7%; Morningstar's 2025 research lowers it to 3.7%for new retirees given today's valuations. Pick your number with open eyes — both are defensible.
Origin: Bengen 1994 & the Trinity Study 1998
Financial advisor William Bengen published "Determining Withdrawal Rates Using Historical Data" in the October 1994 issue of the Journal of Financial Planning. He ran every rolling 30-year period from 1926 onward and asked: what constant inflation-adjusted withdrawal rate would have survived even the worst historical starting year? The answer was 4.15% — which he rounded to 4% and dubbed the SAFEMAX.
Four years later, three Trinity University professors — Philip Cooley, Carl Hubbard, and Daniel Walz — extended the analysis in what became known as the Trinity Study. They reported success rates for a grid of withdrawal rates and stock/bond mixes over 15-, 20-, 25-, and 30-year horizons. The headline table below (30-year horizon, S&P 500 + intermediate-term government bonds, inflation-adjusted withdrawals) is the one that made the 4% rule famous.
| Withdrawal rate | 100% stocks | 75/25 stock/bond | 50/50 stock/bond | 25/75 stock/bond |
|---|---|---|---|---|
| 3% | 100% | 100% | 100% | 100% |
| 4% | 98% | 98% | 95% | 71% |
| 5% | 80% | 70% | 51% | 20% |
| 6% | 63% | 51% | 22% | 2% |
| 7% | 51% | 27% | 7% | 0% |
Source: Cooley, Hubbard, Walz — "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable" (1998), later updated in 2011. Figures use CPI-adjusted withdrawals on S&P 500 + intermediate-term US government bonds, 1926 onward.
The math behind the rule
Why 4% and not 5%? The binding constraint is not the average return — it's the worst starting year. In the Trinity dataset, the retiree who quit in 1966 faced a brutal combination: the 1966–1982 bear-and-inflation stretch hit at the exact moment their portfolio was most vulnerable. A 5% initial withdrawal rate would have depleted that cohort by year 28; 4% survived with room to spare.
This is the heart of sequence-of-returns risk: two retirees with identical average 30-year returns can have wildly different outcomes depending on whenthe bad years arrive. Big losses in the first 5–10 years of retirement are devastating because you're selling shares into a down market to fund withdrawals, permanently shrinking the base that later recoveries compound on.
The 50/50 stock/bondallocation that became canonical in the Trinity Study wasn't dogma — it simply showed the flattest success-rate curve across withdrawal rates up to 4%. More equity exposure lifted upside but also lifted the depth of the worst drawdowns; more bonds smoothed the ride but gave up growth the portfolio needed to keep up with inflation over 30 years.
2026 revisions: why the number keeps moving
Three major 2024–2025 publications revisited the 4% number and arrived at materially different answers. Understanding why they disagree matters more than picking one blindly.
- Bengen: 4.7%
In his 2024 book A Richer Retirement, Bengen revisited the data with a broader asset mix (adding small-cap value, microcap, international) and a valuation-aware lens. His updated SAFEMAX came in at 4.7%. His argument: the 1966 cohort's extreme outcome was shaped by a combination of very low bond yields and accelerating CPI that hasn't repeated, and diversification beyond large-cap S&P 500 lifts the floor.
- Morningstar: 3.7%
Morningstar's State of Retirement Income 2024 and 2025 updates arrived at 3.7% for a 30-year horizon with a 90% success target. Their approach is forward-looking rather than historical: they run Monte Carlo simulations off current capital-market assumptions, which embed both elevated US equity valuations and lower expected bond returns than the 20th-century average.
- Vanguard: 3.5–4.5%
Vanguard's research notes a range of 3.5–4.5% depending on horizon, asset mix, and success threshold, and consistently recommends dynamic withdrawal strategies over a rigid inflation-adjusted dollar amount.
The honest read is that no single number is "right." A backward-looking historical study says 4.0–4.7%; a forward-looking valuation-based study says 3.5–4%. Both are using defensible methodologies on the same question and getting different answers because the future isn't a draw from the past.
Sequence-of-returns risk: the 1966 cohort
Picture two retirees, both starting with $1 million, both withdrawing an inflation-adjusted $40,000/year. Retiree A retires in 1966. Retiree B retires in 1982. Over the 30 years following each starting date, the averagereal return of US stocks isn't that different. But the order is:
- Retiree A (1966 start):hits a bear market in year 4, stagflation in years 7–14, real returns don't turn positive until the 1980s. By 1995, their portfolio is nearly exhausted — selling shares into a falling market while inflation pushed the withdrawal dollar amount up 4x.
- Retiree B (1982 start): catches one of the greatest bull markets in US history. By 2012, their portfolio has grown to several times the starting value even after 30 years of 4% withdrawals.
Why it matters
This is why the 4% rule exists. It's not calibrated to the average — it's calibrated to survive the worst historical sequence. The practical takeaway: the first 5–10 years of retirement returns matter far more than any other decade. If you happen to retire into a strong market, you can safely take more; if you retire into a bad one, you need flexibility to cut back.
Variable withdrawal alternatives
A fixed inflation-adjusted withdrawal is easy to explain but ignores what your portfolio is actually doing. Three widely used alternatives respond to market conditions:
Guardrails (Guyton-Klinger)
Set upper and lower "guardrails" around your current withdrawal rate (typically ±20% of the initial rate). If a market drop pushes your current withdrawal rate above the upper guardrail, cut the dollar amount by 10%. If a bull market pushes it below the lower guardrail, give yourself a 10% raise. Research (Jonathan Guyton and William Klinger, 2006) shows guardrails can sustain starting rates of 5–5.5% with similar failure risk to a static 4% rule.
Variable Percentage Withdrawal (VPW)
Recalculate withdrawals each year as a percentage of the current portfolio, where the percentage rises with age (like RMDs). VPW eliminates failure risk by definition — you mathematically cannot run out — at the cost of spending that can swing significantly year to year. Popular in the Bogleheads community.
Dynamic / floor-and-ceiling
Combine a baseline essential-spending floor (covered by Social Security, a small annuity, or a bond ladder) with a flexible discretionary layer funded by equities. The discretionary layer flexes with market performance; the floor never flexes. Morningstar and Wade Pfau both advocate versions of this approach as more honest than any single withdrawal-rate constant.
What 4% means at different portfolio sizes
The 4% rule is calibrated to the starting portfolio, so year-one income is straightforward arithmetic. These are pre-tax dollars — your actual spendable income depends on where the money lives (taxable brokerage, traditional 401k/IRA, Roth) and your state.
| Portfolio | 4.0% (traditional) | 3.7% (Morningstar) | 4.7% (Bengen 2024) |
|---|---|---|---|
| $500,000 | $20,000 | $18,500 | $23,500 |
| $1,000,000 | $40,000 | $37,000 | $47,000 |
| $1,500,000 | $60,000 | $55,500 | $70,500 |
| $2,000,000 | $80,000 | $74,000 | $94,000 |
| $3,000,000 | $120,000 | $111,000 | $141,000 |
All figures are year-one pre-tax withdrawals. In every subsequent year, the same dollar amount is adjusted for CPI inflation.
Stress-test your own number with our Safe Withdrawal Rate calculator or compute your target portfolio with the FIRE calculator.
FAQ
Does the 4% rule work for early retirement (35-, 40-, or 50-year horizons)?
Not as-is. The Trinity Study's 4% number was calibrated to a 30-year horizon. For longer retirements, sequence-of-returns risk has more time to play out and the safe rate drops. Most research (including Wade Pfau's and Big ERN's Safe Withdrawal Rate Series) puts the conservative number for 50-year horizons closer to 3.25–3.5%. If you're FIRE'ing in your 30s or 40s, plan for 3.3% or build serious flexibility into your spending.
Should I include Social Security in my 4% rule calculation?
No — but it changes what your withdrawal needs to cover. Treat Social Security as a separate inflation-adjusted income stream that reduces the dollar amount your portfolio must produce. If you need $80K/year and Social Security covers $30K, your portfolio only needs to produce $50K — which means a $1.25M portfolio at 4%, not $2M. Just don't apply the 4% rule to your portfolio plus an imaginary lump-sum value of Social Security; treat them as parallel income streams.
What if I'm in a high tax bracket — does the 4% number still apply?
The 4% rule is a pre-tax rule. Whatever you withdraw from a traditional 401k or IRA is taxed as ordinary income; brokerage withdrawals are mostly long-term capital gains; Roth withdrawals are tax-free. If your effective tax rate on retirement income will be 15%, you need to withdraw roughly $47,000 to spend $40,000. The portfolio side of the math doesn't change — but your actual living expenses must be grossed up for taxes when you size the target.
What's the right withdrawal order across taxable, traditional, and Roth accounts?
The conventional wisdom is taxable first, traditional second, Roth last — to let tax-advantaged accounts compound longer. But this isn't optimal for everyone. Many retirees benefit from partial Roth conversions in low-income years between retirement and Social Security/RMD start, or from withdrawing proportionally from all three buckets to fill lower tax brackets each year. The 'right' order depends on your bracket trajectory, IRMAA cliffs, and whether you have heirs. Run a tax-aware projection or consult a CFP.
Should real estate equity count toward my 4% rule portfolio?
Generally no, unless you plan to liquidate it. Your primary residence equity doesn't generate withdrawable cash flow — you can't eat your house. Investment real estate that produces rental income is different: count the net rental income as a separate income stream (like Social Security) rather than including the property's market value in your '25x' portfolio. If you plan to sell and downsize at retirement, only count the net proceeds you'll actually invest.
What should I do if there's a major market crash in year 1 or 2 of retirement?
This is the worst sequence-of-returns scenario, and the 4% rule is technically calibrated to survive even this case historically. But surviving and thriving are different. Practical responses: (1) skip the inflation adjustment for that year, (2) trim 10–20% off discretionary spending temporarily, (3) tap a cash buffer or short-term bond ladder rather than selling equities, (4) consider going back to part-time work for 1–2 years if feasible. Guyton-Klinger guardrails formalize this kind of response.
When should I ignore the 4% rule entirely?
Three situations: (1) If your retirement is heavily front-loaded with guaranteed income (pension + Social Security cover 70%+ of expenses), you can take more from the portfolio without much risk. (2) If you have a long horizon (35+ years), the 4% rule is too generous — drop to 3.3–3.5%. (3) If you're willing to use a dynamic strategy (guardrails or VPW), the 4% rule's rigid framing actively misleads you. The rule is a useful sanity check on portfolio size, not a prescription for how to actually withdraw.
Why isn't the 4% rule a percentage of my current portfolio each year?
The 4% rule applies only to year 1 of retirement; from year 2 onward you take that initial dollar amount adjusted for inflation, not 4% of the current balance. The point is a stable, inflation-adjusted dollar income that doesn't crater when markets do — taking 4% of the current balance every year would cut your withdrawal 30%+ in a bear market, exactly when you can least afford a pay cut. Methods like VPW (Variable Percentage Withdrawal) do recalculate yearly, trading income stability for guaranteed non-failure. Pick your priority.
Methodology & sources
The 4% rule is a backtest result, not a forward-looking prediction. Understanding what the original studies assumed — and what they ignored — is essential before applying the rule to your own plan.
- Asset universe:Trinity Study used the S&P 500 (large-cap US equities) and intermediate-term US government bonds. No international, no small cap, no value tilt, no REITs, no TIPS.
- Time period: Rolling 30-year windows starting in 1926 through roughly 1995. The 1966 starting cohort is the SAFEMAX-binding worst case in the historical sample.
- Inflation: Withdrawals adjusted by CPI-U, applied as a constant real dollar amount each year regardless of portfolio performance.
- Costs: The original rule assumes no taxes and no investment fees. Realistic expense ratios (10–50 bps) and tax drag (variable) come out of your withdrawal in the real world.
- Time horizon: 30 years. For 35-, 40-, or 50-year retirements (early FIRE), the safe rate falls — closer to 3.3–3.5% in most studies.
Related calculators & guides
- FIRE Number Calculator
Compute your target portfolio (25x annual expenses by default) and run an accumulation projection to see when you hit it.
- Safe Withdrawal Rate Calculator
Test 3%, 3.7%, 4%, 4.7% withdrawal rates against your portfolio size and expected horizon to see what level of safety you actually have.
- Coast FIRE Guide
Learn the Coast FIRE concept — once you have enough invested to grow into your target without further contributions.
- Average Net Worth by Age (2026)
See where typical Americans stand at each decade — useful context for calibrating how aggressive your own savings rate needs to be.