What Is the 4 Percent Rule?
The 4 percent rule is a simple retirement guideline that helps estimate how much you can withdraw from your savings each year. Many people use it as a starting point when planning retirement.
The simple definition
The 4 percent rule says that if you withdraw 4 percent of your retirement savings in your first year, then adjust that amount for inflation each year after, your money may last about 30 years.
First-year retirement withdrawal = Total savings × 4%
Example: If you have $1,000,000, you can withdraw about $40,000 in your first year.
Why people use it
- Simple and easy to understand
- Quick starting point for retirement planning
- Works well with the 25x rule
How it works
- Calculate your total savings
- Take 4% in year one
- Adjust for inflation each year
Limitations
- Market returns may vary
- Inflation may be higher
- Retirement may last longer than 30 years
4% rule vs 25x rule
Retirement savings = Annual expenses × 25
These two rules work together to estimate both how much you need and how much you can withdraw.
Bottom line
The 4 percent rule is a helpful starting point, but it should not be your only strategy. Use calculators to get a more personalized estimate.