4 Percent Rule Calculator
The 4 percent rule says a portfolio can pay out 4% of its starting value in the first year of retirement, then the same amount rising with inflation, for at least 30 years. $1,000,000 gives $40,000 a year, $3,333 a month; $40,000 a year of income needs $1,000,000. Type your portfolio or your income to see both.
What 4% gives
$40,000 a year
4% of $1,000,000
- Monthly at 4% $3,333
- At 3.5% $35,000 a year
- At 3% $30,000 a year
- At 5% $50,000 a year
- Portfolio for $40,000 a year at 4% $1,000,000
| Rate | Income from $1,000,000 | Portfolio for $40,000 |
|---|---|---|
| 3% | $30,000 | $1,333,333 |
| 3.5% | $35,000 | $1,142,857 |
| 4% | $40,000 | $1,000,000 |
| 4.5% | $45,000 | $888,889 |
| 5% | $50,000 | $800,000 |
How does the 4 percent rule work?
First-year income = portfolio × 4%; each later year’s income = the previous year’s × (1 + inflation). Portfolio for an income = income ÷ 4% = 25 × income.
Worked example. $1,000,000 × 0.04 = $40,000 in year one, or $3,333 a month. With 2.5% inflation, year two pays $41,000 and year ten about $49,955. The other way: $40,000 of income ÷ 0.04 = $1,000,000; at 3.5% the same income needs $1,142,857.
Where the rule came from
In 1994 William Bengen replayed every 30-year retirement since 1926 for a half-stock, half-bond portfolio and found the highest first-year rate that never ran out was a little over 4%. Four years later the Trinity study, by three professors at Trinity University, reported success rates for many rates and periods, with 4% over 30 years succeeding about 95% of the time. The guide gives the details and the caveats.
Using it before retirement
Multiply your planned spending by 25 and you have the FIRE number. That one step is the whole link between the rule and the FIRE movement: a withdrawal rate turned into a savings target.
Using it after
Set the first year’s withdrawal, write it down, and raise it by inflation each year. Many retirees add a simple guardrail: if the portfolio falls 20% from its start, skip the next inflation rise. The safe withdrawal rate calculator shows how long a portfolio lasts at any rate and return.
Questions about the 4 percent rule
What is the 4 percent rule?
Withdraw 4% of your portfolio in the first year of retirement, then the same dollar amount adjusted for inflation each year after, and the money should last at least 30 years. It comes from William Bengen’s 1994 study of US returns since 1926, confirmed by the 1998 Trinity study, which found a 95% success rate over 30 years for a half-stock, half-bond portfolio.
How much income does $1 million give?
$40,000 in the first year, $3,333 a month. At 3.5% it is $35,000; at 3%, $30,000; at 5%, $50,000. The results show all four.
Is it 4% of the portfolio every year?
No, and the difference matters. The rule is 4% of the starting portfolio, then that amount rising with inflation, whatever the portfolio does. Taking 4% of whatever the portfolio is worth each year can never run out but gives an income that swings with the market.
Does the rule still hold?
Over 30 years, the historical evidence has held up, with 4% surviving almost every period since 1926. Critics point to lower expected returns today and to retirements longer than 30 years; supporters point out that it was built on the worst periods in history. Many planners now quote 3.5% to 4% as a range rather than 4% as a rule.
What portfolio did the studies assume?
US stocks and bonds, 50% to 75% stocks, rebalanced yearly, with no fees or taxes. A portfolio of other countries’ assets, or with high fees, has a different safe rate.