What is the 4% Rule? The 4% Rule is the shorthand name most people use for a safe withdrawal rate of four percent: take 4% of your portfolio’s value in year one of retirement, then raise that dollar amount by inflation each following year, regardless of how the market performs. It’s less a law of physics than a planning heuristic, but it’s the single most-cited number in the FIRE community for a reason: it turns “how much do I need” into one multiplication.
The number traces back to a 1994 analysis by financial planner William Bengen, popularized a few years later by the Trinity Study, a paper from Trinity University professors that tested withdrawal rates against US market returns going back to 1926. Their conclusion: a 4% starting withdrawal rate, paired with a stock-heavy portfolio, survived nearly every 30-year period in the historical data.
Formula: annual withdrawal = portfolio value × 4%. Worked example: a $700,000 portfolio supports a $28,000 withdrawal in year one. If inflation runs 4% that year, year two’s withdrawal becomes $28,000 × 1.04 = $29,120, again regardless of what the market did. Flip the formula around and you get the 25x Rule: $28,000 in annual spending × 25 gets you back to that same $700,000 target, since 1 ÷ 4% equals 25. Plug your own spending into the FI calculator to see your target portfolio at 4%, 3.5%, and other rates side by side.
Two caveats matter more than the headline number. First, sequence of returns risk: a market crash in the first five years of retirement does far more damage than the same crash a decade in, because you’re selling shares at depressed prices to fund withdrawals. Second, the 3.5% versus 4% debate: many planners today start lower, 3.5% or even 3.25%, especially for retirements longer than the Trinity Study’s 30-year window or portfolios with meaningful international and currency exposure, both common for early retirees and nomads (why the rule breaks outside the US covers this in depth). A lower starting rate costs you a bigger required portfolio up front but buys real insurance against both risks.
The 4% Rule is a starting assumption, not a fixed contract with your portfolio. Run your own numbers, including a range of withdrawal rates, through a withdrawal simulator before treating any single percentage as settled.