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The 4% rule (safe withdrawal rate)
1994 (Bengen)· Concept or strategy
Depends on youExperts differ; the right answer depends on your situation.
A rule of thumb: withdraw 4% of savings in year one, then raise that dollar amount with inflation each year.
See it on the Personal Finance & Estate map →How it works
Planner William Bengen (1994) tested every 30-year US retirement since 1926 with a stock-bond mix and found 4% never ran out; the worst cases retired in the late 1960s. On $1 million, that's $40,000 the first year. The 1998 Trinity study backed it. Critics say it ignores fees, taxes and flexible spending, and leans on unusually strong US history. Morningstar's yearly estimates have ranged about 3.3–4%; Bengen now suggests about 4.7% with broader diversification.
Why it matters for you
Depends on you: it gives a quick target (savings about 25 times the yearly gap) but is a starting point, not a plan. Ask a planner to adjust for taxes.
Think of it like
Like a cap rate: a fast way to size income or value, not a substitute for full underwriting.
Rules, limits and sources (2026)
Bengen, Journal of Financial Planning, October 1994; Cooley, Hubbard and Walz (Trinity University, 1998); Morningstar's yearly 'State of Retirement Income' reports.
Watch out for
Whether future returns will match US history, and whether flexible 'guardrail' rules beat a fixed 4%, are open questions.
Connections (2)
▸The 4% rule (safe withdrawal rate) is a rule of thumb for Retirement income planning (savings into paychecks)Standard practice
How they connect
The 4% rule gives a retirement plan its first rough number: spend 4% of the starting portfolio, adjusted for inflation, and history says it lasts 30 years. Planners use it to test whether savings are enough, then refine it for taxes, Social Security timing and flexible spending.
When it applies
Published by planner William Bengen in the Journal of Financial Planning in 1994, using US market data back to 1926.
How sure?
Repeated by the Trinity study (1998) and many later backtests; widely taught in financial-planning courses.
Watch out for
Many planners now prefer dynamic 'guardrails' that cut or raise spending with markets; which works best is unsettled.
▸The 4% rule (safe withdrawal rate) was calibrated to withstand Sequence-of-returns riskStandard practice
How they connect
Bengen picked 4% because it survived the worst sequences in US history, such as retiring just before the 1966–82 stretch of poor real returns. So the rule is built around sequence risk, but a future sequence worse than any in the record could still break it.
When it applies
Bengen's 1994 study; the worst historical start years were around 1966–1968, when stagnant markets met high inflation.
How sure?
Backtests on long-run US data (Ibbotson, Shiller) show starting years, not average returns, decided which portfolios failed.
Watch out for
Whether non-US history, where some markets did far worse, is the better guide is debated; global data give lower safe rates.