Updated July 1, 2026
The 4% rule says you can withdraw 4% of your retirement savings in your first year, then increase that dollar amount with inflation each year, with a strong historical chance the money lasts at least 30 years. On a $1 million portfolio that is $40,000 in year one, adjusted upward for inflation after that.
Where it comes from
The number traces to two pieces of research, not one. Financial planner William Bengen published the original analysis in 1994, running historical U.S. stock and bond returns through retirement scenarios to find a withdrawal rate that survived even the worst starting years, like someone retiring right before a bad market. Three finance professors at Trinity University, Philip Cooley, Carl Hubbard and Daniel Walz, extended that work in a 1998 paper that became known as the Trinity study, testing a range of withdrawal rates against overlapping 30-year periods of U.S. market history back to 1926. A 4% starting withdrawal, adjusted for inflation each year after and split between stocks and bonds, held up in the large majority of those historical stretches, which is how it became the default planning anchor.
What the Trinity study does not promise
Both papers are explicit about the limits, and it is worth repeating them here. The Trinity study is a backward-looking test of past U.S. market history, not a forecast or a guarantee that future markets behave the same way. It assumes a roughly 30-year retirement; retire at 55 and live to 95, and you are asking the rule to cover 40 years, a period the original study tested far less thoroughly. It also does not account for fees, taxes, or a retiree who deviates from a strict inflation-adjusted withdrawal, and a bad sequence of returns in the first several years of retirement (sequence-of-returns risk) can strain a 4% withdrawal even in scenarios where the long-run average return looks fine. None of that makes the 4% rule wrong. It makes it a historical starting point to adjust from, not a number to set and forget.
How to use it both directions
To size a nest egg, flip the rule: multiply the annual income you need from savings by 25. Need $40,000 from your portfolio? That is $1 million. Need $60,000? That is $1.5 million. This is the fastest way to translate a spending goal into a savings target.
The limitations
The 4% rule is a guideline, not a guarantee. It was built on historical data, and a stretch of low returns early in retirement (called sequence-of-returns risk) can strain it. It assumes a roughly 30-year retirement and a balanced portfolio. Retire very early, hold mostly cash, or face a bad first decade, and you may want to start lower.
Does it include Social Security?
No. The 4% rule applies only to your investment portfolio. Social Security and pensions are separate, guaranteed income on top. That is good news: the more of your spending those cover, the smaller the portfolio the rule has to support.
4% vs 5%, and flexible alternatives
A 5% withdrawal gives more income but raises the odds of running short, especially early. Many retirees use a flexible approach instead: start near 4%, then spend a little less after down years and a little more after strong ones (often called guardrails). This adapts to markets rather than locking in one number for 30 years.
Test a withdrawal rate against your own balance
See how long your savings last at 4%, and how that changes at 3% or 5%.