The 4% rule, explained with real numbers
7-minute read · Updated August 2026 · Pairs with the FIRE Calculator
The short answer
The 4% rule: if you withdraw 4% of your portfolio in your first retirement year and adjust for inflation after that, a diversified portfolio has historically lasted 30+ years. In practice that makes your retirement target annual spending × 25 — spending $3,000/month means a $900,000 portfolio. At a more conservative 3.5% rate, the target is about 28.6× — roughly $1.03 million for the same spending.
Where does the 4% rule come from?
The rule traces back to the 1990s: financial planner William Bengen tested historical US market data to find the highest withdrawal rate that survived every 30-year retirement window since 1926, and the “Trinity study” later reached a similar answer with portfolios of stocks and bonds. The finding: a first-year withdrawal of about 4%, adjusted for inflation annually, survived even retirements that began right before historic crashes.
Flip the 4% around and you get the planning shortcut everyone actually uses: to fund your lifestyle from your portfolio, you need roughly 25 times your annual spending invested.
What does it look like with real numbers?
| Monthly spending | Annual spending | Target at 4% (×25) | Target at 3.5% (×28.6) |
|---|---|---|---|
| $2,000 | $24,000 | $600,000 | $686,000 |
| $3,000 | $36,000 | $900,000 | $1,029,000 |
| $4,500 | $54,000 | $1,350,000 | $1,543,000 |
| $6,000 | $72,000 | $1,800,000 | $2,057,000 |
Targets rounded to the nearest $1,000. The 3.5% column is the common conservative variant for retirements longer than 30 years.
Notice the leverage of spending: every $500/month you trim from your retirement budget removes $150,000 from the 4% target. Spending assumptions move the goal far more than squeezing an extra half-percent of investment return.
When does the rule break?
Three honest caveats. First, it's built on US historical returns — one country's unusually good century. Second, it models a 30-year retirement; retiring at 40 means funding 50 years, which is why early retirees often plan at 3.25–3.5%. Third, it ignores taxes and fees — your withdrawal has to cover both, so plan with your gross spending, not net.
The practical response isn't to abandon the rule but to treat it as a dial: run your numbers at 4% and 3.5%, see the range, and let flexibility — the willingness to spend a little less in bad years — be the real safety margin.
Frequently asked questions
What is the 4% rule in one sentence?
Withdraw 4% of your portfolio in the first year of retirement (adjusting for inflation after that), and historically a diversified portfolio survived 30 years — which is why your target is annual spending × 25.
Is the 4% rule still realistic in 2026?
It's a planning benchmark, not a guarantee. It comes from historical US returns over 30-year retirements; for longer horizons or more conservative assumptions many planners model 3.5%, which raises the target to about 28.6× annual spending.
Does the 4% rule account for inflation?
Yes — the rule assumes you increase the withdrawal amount with inflation each year. What it doesn't promise is that any particular future repeats the historical record it was derived from.
What's my FIRE number if I spend $3,000 a month?
$3,000 a month is $36,000 a year; at the 4% rule that's $36,000 × 25 = $900,000. At a more conservative 3.5% withdrawal rate the target is about $1.03 million.