The 4% rule says that in your first year of retirement you can withdraw 4% of your portfolio, then increase that dollar amount with inflation each year, and historically have a very high chance of the money lasting about 30 years. On a $1,000,000 portfolio, that’s $40,000 in year one — then $40,000 plus inflation in year two, and so on. It’s the most quoted number in retirement planning, and the basis for the 25x FIRE number (since 1 ÷ 4% = 25).
Model your own drawdown with the 4% Rule & Safe Withdrawal Calculator. First, where the rule comes from — and why 2026 retirees should treat it with care.
Where the 4% rule came from
In 1994, financial adviser William Bengen tested every 30-year retirement window in US history against a portfolio of stocks and bonds. He found that a 4% initial withdrawal, adjusted for inflation, would have survived all of them — even retirements that began just before the 1929 crash or the 1970s stagflation. The 1998 Trinity Study by three Trinity University professors confirmed the finding across many stock/bond mixes.
The rule’s appeal is its simplicity: one number tells you both how much you can spend and how big a portfolio you need.
How the withdrawal actually works
The mechanics matter, because people often get them wrong:
- Year one: withdraw 4% of your starting balance.
- Every year after: take last year’s dollar amount and increase it by inflation — you do not recalculate 4% of the current balance.
So your spending is smoothed and inflation-protected, while your portfolio rides the market up and down underneath it. Here’s what a 4% withdrawal looks like at different portfolio sizes in year one:
| Portfolio | 4% first-year income | 3.5% first-year income | 3% first-year income |
|---|---|---|---|
| $750,000 | $30,000 | $26,250 | $22,500 |
| $1,000,000 | $40,000 | $35,000 | $30,000 |
| $1,500,000 | $60,000 | $52,500 | $45,000 |
| $2,000,000 | $80,000 | $70,000 | $60,000 |
The big caveat: sequence-of-returns risk
The 4% rule’s deadliest enemy isn’t a low average return — it’s a low early return. This is sequence-of-returns risk: if the market falls hard in your first few retirement years while you’re also withdrawing, you sell more shares at low prices, and the portfolio may never recover even if average returns are fine.
Two retirees can earn the same 7% average over 30 years and end up worlds apart — the one who hit a bad stretch first can run out of money, while the one who hit it last dies wealthy. That’s why the Coast FIRE and accumulation phases are about more than just hitting a number; when the bad years arrive is partly luck.
The calculator lets you stress-test this by lowering the assumed return and watching how quickly the balance erodes.
Is 4% still safe for a 2026 retiree?
Three reasons for caution today:
- Longer retirements. The 4% rule was built for 30 years. Early retirees in the FIRE community may need 40–50 years, which historically argues for a lower rate — closer to 3–3.5%.
- Valuations and yields. When stocks are expensive and bond yields modest, future returns may be lower than the historical averages the rule was calibrated on.
- It’s US-centric and backward-looking. The studies used US market history, which was unusually strong globally. The future may not rhyme.
On the other hand, the original studies were deliberately conservative — they required the money to last the full period in the worst historical case, and in most periods the retiree died with more than they started with. So 4% isn’t reckless; it’s just not a guarantee.
Smarter ways to draw down
Many retirees treat 4% as a starting point and add flexibility:
- The guardrails approach: spend a bit more after strong years, trim spending after bad ones. Flexibility dramatically improves survival odds.
- A lower base rate (3–3.5%) for very long retirements or extra peace of mind.
- A cash/bond buffer of 1–3 years’ spending to avoid selling stocks during a downturn — a direct defense against sequence-of-returns risk.
- Separating essential from discretionary spending, so you can cut the discretionary part when markets are poor.
A worked example
You retire with $1,250,000 and use a 4% rule.
- Year-one income: $50,000.
- Year two: $50,000 × (1 + inflation). If inflation is 2.5%, that’s $51,250.
- The drawdown calculator projects the balance year by year given your assumed return and inflation, and flags the year the portfolio would deplete if your withdrawal rate is too aggressive for your return.
If the model shows your money running out before 30 years, your levers are: spend less (lower the rate), retire with more (a bigger FIRE number), or build in flexibility.
The bottom line
The 4% rule is a brilliant planning heuristic and a fine anchor for estimating your number. It is not a promise that your money will last, and a 2026 retiree — especially an early one — should treat it as a ceiling to pressure-test, not a floor to assume. Pair it with flexible spending and a cash buffer, and you turn a rule of thumb into a resilient plan.
This is general information and an estimate, not financial advice. Confirm any tax-related figures with the IRS and work with a qualified professional before drawing down a real portfolio.