The 4 Percent Rule

Bengen’s historical test William Bengen’s 1994 research tested US stocks, intermediate-term Treasuries and inflation-adjusted withdrawals. Its illustrative 50/50 portfolio at a 4% start did not exhaust before 33 years in the tested historical cases. That is a dated result, not a future guarantee. Source 2.

The Trinity study Cooley, Hubbard and Walz’s 1998 study compared withdrawal rates, allocations and payout periods using US data from 1926 to 1995. “Success” meant a positive ending balance in a tested period; taxes and transaction costs were excluded. Source 3.

Classic inflation adjustment A $40,000 first-year withdrawal becomes $41,200 after assumed 3% inflation, regardless of whether the portfolio rose or fell. This can put pressure on a depleted portfolio.

Percentage-of-balance approach Taking 4% of a new $800,000 balance would instead produce $32,000. That is a different spending policy, with a payment that moves with the balance. Compare the rules explicitly.

Cash must be taken out The return sequence determines the balance on which the next withdrawal and return act. A steady-return projection removes that variation, even if its assumed average seems reasonable.

Compare the stress cases The Trinity authors explain why year-to-year variation can change outcomes for a withdrawing investor. Keep timing, withdrawals and inflation explicit when comparing scenarios. Source 3.

Check the assumptions The horizon, allocation, future returns and willingness to change spending affect the analysis. A historical success rate is not a personal probability of success. Source 1.

Account for costs A withdrawal amount is not necessarily spendable income after taxes and fees. A longer retirement, different assets or less spending flexibility can change the plan. The original shortcut does not resolve those questions. Source 1.

Check the timing Use an estimate for your own entitlement and intended claiming date. US Social Security benefits depend on birth year and claiming age; the SSA explains how starting early changes payments. Source 4.

Avoid a timing mismatch Do not subtract income in a year before it starts. Check survivor arrangements, inflation treatment, taxes and whether amounts are stated monthly or annually. Use local official guidance for other countries.

Compare its assumptions Open the Investment Withdrawal Calculator. Use the original practice inputs: $1,000,000, a 4% first withdrawal, 30 years, 5% assumed annual return and 3% inflation. Confirm withdrawal timing and inflation settings before reading the projection.

Write what it leaves out Compare a 3% assumed return, then note that a steady return cannot reproduce the two different sequences above. Write which spending you could adjust after an early loss and which expenses need another funding plan. A calculator output is a scenario, not a promise.