What Is 4% Rule?
A retirement guideline that withdrawing 4% of your portfolio yearly should last 30+ years.
Definition
The 4% rule, derived from William Bengen's 1994 study, says a retiree can withdraw 4% of their starting portfolio in year one, then adjust annually for inflation, with high probability the portfolio lasts 30 years. It assumes a roughly 50/50 stock/bond portfolio. Originally validated against 1926-1976 US data, the rule is debated for current low rates and longer retirements; some now suggest 3.5% or dynamic withdrawal strategies. Useful as a starting target: multiply your annual spending by 25 to estimate the nest egg you need.
Formula
Required nest egg = Annual spending × 25
Example
Spending $80,000/year in retirement implies a $2 million target portfolio (×25).
Use It
Try the Retirement CalculatorRelated Terms
401(k)A US employer-sponsored retirement plan with tax advantages and often an employer match.Roth IRAA retirement account funded with post-tax dollars that grows and withdraws tax-free in retirement.Compound InterestInterest calculated on both the original principal and the accumulated interest from prior periods.