What Is the 4% Rule for Retirement?

How Does the 4% Rule Work?

The 4% rule is a guideline for keeping your retirement income consistent without depleting your investments too early. Under this rule, you withdraw 4% of your total investment portfolio in your first year of retirement, then adjust your payout for inflation every year after that.

Example: If you retired in 2025 with $1 million in investments, you would withdraw $40,000 in 2025. Using the 2026 cost-of-living adjustment for Social Security—2.8%—your 2026 total withdrawal would increase to $41,120. After the first year, you don't calculate your withdrawal based on your investment balance; instead, you'll take your prior year's withdrawal and adjust it for inflation.

Where Does the 4% Rule Come From?

The 4% rule was introduced in a 1994 research paper by financial planner William Bengen. Bengen found that hypothetical portfolios that invested 50% in stocks and 50% in bonds lasted at least 30 years when they followed the 4% rule. He tested these portfolios against various 30-year periods going back to 1926. Through good economic cycles and bad, market crashes and boom times, the 4% rule resulted in 30 years of consistent retirement income.

Over the years, financial planners have offered many revisions to the 4% formula. Conservative investors have previously suggested setting withdrawals to between 3% and 4%, based on the belief that investments may see more modest returns in the decades to come. Other financial planners, including Bengen himself, say you may be able to withdraw 5% or more safely each year, if you invest your funds wisely.

Risks of the 4% Rule

If you use the 4% rule (and only the 4% rule), you may not have the flexibility you need to handle all the challenges you'll face as a retiree. For what it's worth, Bengen described the 4% rule as a research finding, not necessarily a prescription for managing money throughout a long retirement.

While the 4% rule is completely safe as a tool for estimating your potential retirement income, implementing it and staying with it for 30 years might be another story. Here are a few risks to consider.

You May Want More Investment Flexibility

The 4% rule uses a model portfolio made up of 50% stocks and 50% bonds. Changing the mix of investments in your portfolio could change your results. However, you may want the flexibility to choose a different allocation of assets and to change your allocations, even slightly, over the course of your retirement.

You Don't Respond to Market Fluctuations

Although the original 4% rule looked at decades of market data, past performance is not an absolute predictor of future results. You may want to rebalance your portfolio and adjust your spending temporarily in response to major market fluctuations so a severe downturn doesn't affect your portfolio's long-term health—and so you can take advantage of major gains.

You Don't Account for Taxes

Except for qualified withdrawals from Roth IRA and Roth 401(k) plans, most of the money you'll withdraw in retirement is taxable. Traditional IRA and 401(k) distributions are taxable as regular income. Money held in a regular investment account may be subject to capital gains taxes as well as taxes on dividends and interest. State taxes may also come into play. These taxes come out of the money you withdraw, so you need to plan accordingly.

Learn more: How are 401(k)s Taxed in Retirement?

Emergency and Health Care Expenses Add Up

Emergency expenses can derail your budget, and they aren't always discretionary. Health care expenses, including prescription drugs, hospitalizations, long-term care and even dental treatments, add up quickly—and they aren't always easy to plan for. A 2025 report from Fidelity Investments found that a typical 65-year-old retiring in 2025 might spend $172,500 on health care in retirement.

You Might Underspend

In an effort to preserve your money, the 4% rule may result in underspending. Though that may sound better than running out of money, sticking to the same 4% withdrawal rate for 30 years can feel like a hardship, especially if your investments outperform the 4% model. You might wish you had more leeway—or may struggle to meet financial challenges unnecessarily.

You Still Might Outlive Your Money

Major unexpected expenses, seismic shifts in the stock and bond markets, economic swings and your own longevity could cause your money to run out. In these cases, it's not so much that the 4% rule doesn't work but the reality that you can't protect yourself from every possible contingency.

Should You Follow the 4% Rule?

If you're looking ahead to retirement, the 4% rule could provide consistent income you can live with. For some, however, it may prove to be too inflexible to take on 30 years of variable finances.

Here are some questions to think about as you map out your retirement plans.

Is 4% a Realistic Starting Point?

Do a quick projection of where your retirement investments might be at retirement age, then calculate 4%. After factoring in Social Security benefits, pensions, annuities and any other sources of income, can you expect to live on 4%? You may want to consider options like delaying retirement, selling your home or developing passive income streams if 4% doesn't seem like a workable start.

How Long Do You Need Your Money to Last?

The 4% rule is designed to maintain your assets for at least 30 years. The average 65-year-old in the U.S. can expect to live another 18 to 21 years, though many people live well into their 90s and beyond. While you can't accurately predict how long you'll live, you can factor in your age at retirement, overall health and family history of longevity to get a ballpark estimate. Retiring at 55? You may need more than 30 years of funding. Finally slowing down at 73? You may be able to spend a little more.

How Flexible Do You Want to Be?

While the idea of fixed retirement income is appealing, retirement spending isn't necessarily steady and predictable. Younger retirees may be more inclined to travel and splurge on activities like dining out. Older retirees may incur higher medical or long-term care costs. In between, surprise expenses like major home repairs can pop up at any time.

Economic and market factors can also affect your portfolio. In a down market, you'll have to be willing to withdraw less or forgo cost-of-living increases to help preserve your money. Conversely, you may be able to withdraw more if your portfolio outperforms expectations.

Learn more: How Much Will You Spend in Retirement?

Do You Want a More Active Plan?

Working with a retirement planner or financial advisor is one way to build more flexibility into your retirement finances. You can still plan to make consistent withdrawals throughout retirement to preserve your money, but you can also reality-check your progress to make sure your investments and withdrawals are on track. If you have unusual expenses or need to adjust your spending, an advisor can help you navigate those changes.

Alternatives to the 4% Rule

The 4% rule is a good starting measure, but it's not the only strategy you can use to manage your retirement finances. Here are three common approaches you can use instead of, or along with, the 4% rule:

• The bucket strategy divides your retirement savings into three buckets—short-term, mid-term and long-term—and invests your funds accordingly. Short-term funds are available as cash. Mid-term funds are invested conservatively (for example, in bonds). And long-term funds you don't plan to tap for more than 10 years are invested for growth.
• The guardrails strategy allows flexibility in the percentage of money you withdraw each year based on market conditions. Withdrawals still stay within limits, but instead of withdrawing a steady 4% each year, you might withdraw between 4% and 6%, depending on the market.
• Proportional withdrawals divide your withdrawals between accounts based on tax strategy. You might, for example, withdraw a portion of your income from a fully taxable traditional 401(k), some from a tax-free Roth IRA and the remainder from a taxable brokerage account.

Using a variety of methods, an investment advisor can work with you to create a personalized strategy that provides consistent income while managing risk. Whether you choose to follow the 4% rule or another strategy, meeting with an advisor yearly to monitor your portfolio's performance and recalibrate as needed might give you both flexibility and consistency—the best of both worlds.

The Bottom Line

The 4% rule can be a helpful starting point when you're planning your retirement. But, inevitably, your individual needs will vary. What's more, 30 years of retirement is too long for a set-it-and-forget-it strategy. You'll need to meet three decades of sometimes unpredictable financial challenges, which will probably require making adjustments over time.

Consider finding a financial planner who can help you map out a retirement strategy, then keep you on target with regular check-ins as you navigate your retirement years. The 4% rule is a good place to start your thinking but it's almost certainly not the only strategy you'll need to manage a long retirement.