GLOSSARY · RETIREMENT WITHDRAWALS & EARLY ACCESS

4% rule

A finding from US market history: withdrawing about 4% of the starting portfolio, then raising the amount with inflation, lasted through every 30-year period Bengen tested from 1926. It describes past US markets over 30 years, not a promise, and longer early retirements are often planned at a lower rate.

Also called: four percent rule, safe withdrawal rate rule, trinity study

COMPUTE IT WITH YOUR NUMBERS

Safe withdrawal rate / how long money lasts →How much can I withdraw each year without running out?Monte Carlo retirement success →What is the probability my plan survives volatility?

LEARN IT PROPERLY

CHAPTER · RETIREMENT PLANNING FUNDAMENTALS · FOUNDATIONSYour Retirement Number CHAPTER · RETIREMENT PLANNING FUNDAMENTALS · FOUNDATIONSTurning Savings into Income QUICK ANSWERWhat is the 4% rule?The 4% rule says that if you withdraw 4% of your portfolio in the first year of retirement and raise that amount with inflation each year, your money lasted at least 30 years in every period of US market history that its author tested from 1926. It is a finding about the past, built for 30-year retirements, not a guarantee.

SOURCES

Determining Withdrawal Rates Using Historical Data. Bengen, Journal of Financial Planning, 1994.
Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable. Cooley, Hubbard & Walz (Trinity study), AAII Journal, 1998.

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