What Is the 4% Rule (Safe Withdrawal Rate)?
5 min read · Last reviewed July 1, 2026
The 4% rule is one of the best-known guidelines in retirement planning. It offers a simple answer to a hard question: once you've saved a pot of money, how much can you spend each year without running out?
This guide explains where the rule came from, how to use it both to plan income and to set a savings target, and the important caveats that mean it's a guide rather than a guarantee. It's general information, not personalised financial advice.
Where the rule comes from
The rule grew out of 1990s research into historical market returns. It found that retirees who withdrew 4% of their portfolio in the first year, then adjusted that amount for inflation each year after, rarely ran out of money over a 30-year retirement.
The idea is that a sensibly invested portfolio can usually grow enough to replace what a 4% annual withdrawal takes out, at least over the periods studied.
How to use it
In one direction, it tells you your income: a 500,000 portfolio supports a first-year withdrawal of 500,000 × 0.04 = 20,000, rising with inflation thereafter.
In the other direction, it sets a savings target: multiply the annual income you want by 25. Wanting 30,000 a year implies a pot of roughly 30,000 × 25 = 750,000. That 'multiply by 25' shortcut is just the 4% rule turned around.
The criticisms worth knowing
The rule is based largely on historical data and a 30-year horizon. Retire earlier and you need the money to last longer, which argues for a lower rate. A run of poor returns early in retirement can also strain a portfolio more than the averages suggest.
Many people now treat 4% as a flexible anchor rather than a fixed rule — trimming spending in bad years, allowing more in good ones. Use it to get in the right ballpark, then adapt as your circumstances and the markets actually unfold.
Frequently asked questions
▶How much do I need to retire using the 4% rule?
Multiply the annual income you want by 25. For 40,000 a year, that's roughly 40,000 × 25 = 1,000,000. It's a planning estimate, not a precise figure.
▶Is the 4% rule still reliable?
It's a useful starting point, but it's based on historical data and a 30-year retirement. Early retirees or those facing poor early returns may want a lower rate and a flexible approach to spending.