The 4% Rule and How Much You Need to Retire
Read the full lesson page, check three ideas, then try its educational activity.
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The 4% rule says you withdraw 4% of your savings in the first year of retirement, then raise that dollar amount with inflation each year. On $1,000,000 that starts at $40,000. In US data since 1926 it usually lasted at least 30 years, but it rests on past returns and ignores fees, so treat it as an estimate rather than a guarantee.
Check your understanding
Question 1
With $1,000,000 and 3% inflation, what does the 4% rule withdraw in year two?
- $40,000
- $41,200
- 4% of whatever the balance is then
- $43,000
Show the answer
Answer: B. Year one is $40,000; year two raises that dollar amount by 3% to $41,200, whatever the balance did.
Question 2
You expect to need $50,000 a year beyond Social Security. What savings target does the rule of 25 suggest?
- $500,000
- $1,250,000
- $2,000,000
Show the answer
Answer: B. $50,000 × 25 = $1,250,000, and 4% of $1,250,000 is $50,000.
Question 3
In Bengen’s 1994 data, who fared worst at a 5% starting withdrawal?
- People who retired in the late 1960s and early 1970s
- People who retired in the 1950s
- People who retired in 1926
Show the answer
Answer: A. Bengen found they might have had only 20 years of income; the 1973 to 1974 downturn, with high inflation, did the most damage.
Practice this lesson
Enter a starting portfolio value of $1,000,000, an annual withdrawal rate of 4%, a retirement duration of 30 years, an expected annual return of 5% and an inflation rate of 3%, and choose to adjust withdrawals for inflation. Read the final balance, the depletion year and the year by year projection. Then lower the return to 3% and compare. The tool uses one steady return, so it cannot show sequence risk.
Write down what you learned
In your notes, state the idea in your own words, the evidence you checked, and one limitation. Use hypothetical figures or virtual money for any exercise.
Key takeaways
- The 4% rule: withdraw 4% of savings in year one, then raise that dollar amount with inflation each year.
- Bengen’s 1994 study found a 4% start never ran out in under 33 years in US data from 1926.
- The 1998 Trinity study found 95% success for a 4% start from a 50/50 mix over 30 years.
- Losses early in retirement do more damage than the same losses later; that is sequence of returns risk.
- Rule of 25: multiply the yearly gap after Social Security by 25 for a rough savings target.
- Fees, taxes, longer retirements and weaker future returns can make 4% too high for some retirees.
AI responses are for educational purposes. Always verify with official course materials.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
Sources and reference material
Primary sources and original reference material for the concepts discussed on this page.
- Social Security Administration: Starting your retirement benefits early
- Social Security Administration: Delayed retirement credits
- Social Security Administration: 2026 cost of living adjustment fact sheet (October 2025)
- Social Security Administration, Office of the Chief Actuary: Cost of living adjustments
- Scott, Sharpe and Watson, The 4% Rule: At What Price? (April 2008)
- Charles Schwab, The 4% Rule: How Much Can You Spend in Retirement? (March 27, 2026)
References added 14 October 2026.
AI responses are for educational purposes. Always verify with official course materials.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
