The 4% Rule: How much do you actually need to retire?
August 2026 · 6 min read
The short answer: 25 times your annual expenses. If you spend $40,000 a year, you need $1,000,000. If you spend $60,000, you need $1,500,000.
That's the 4% rule. Withdraw 4% of your portfolio in year one, then adjust for inflation each year after that, and historically you wouldn't have run out of money over a 30-year retirement. It's the backbone of every FIRE calculation.
Where it comes from
In 1998, three finance professors at Trinity University published a study (the "Trinity Study") that backtested different withdrawal rates against historical market data. They looked at every 30-year period from 1926 onward and asked: what percentage could you withdraw annually without going broke?
The answer was about 4%. At that rate, a 50/50 stock/bond portfolio survived 95% of all 30-year historical periods. A 75/25 stock/bond mix did even better.
William Bengen actually found this result a few years earlier in 1994, calling it the "SAFEMAX" — the maximum safe withdrawal rate. The Trinity Study confirmed it with more data.
The math is simple
(which is the same as: annual expenses × 25)
Some examples:
| Annual expenses | FIRE number (25×) | Monthly withdrawal |
|---|---|---|
| $30,000 | $750,000 | $2,500 |
| $40,000 | $1,000,000 | $3,333 |
| $60,000 | $1,500,000 | $5,000 |
| $80,000 | $2,000,000 | $6,667 |
| $100,000 | $2,500,000 | $8,333 |
When the 4% rule breaks down
The rule has real limitations. You should know them:
1. It assumes a 30-year retirement. If you retire at 35 and live to 90, that's 55 years — well beyond what the Trinity Study tested. For early retirees, a 3.5% or even 3.25% withdrawal rate is safer. That means 28-31× expenses instead of 25×.
2. Sequence of returns risk. If the market crashes in your first few years of retirement, you're withdrawing from a shrinking portfolio. A $1M portfolio that drops to $700k in year one is now a very different retirement than one that grows to $1.3M first. The 4% rule accounts for this historically, but it doesn't mean every future scenario works out.
3. It's based on US historical data. The US stock market has had an exceptional run over the last century. Other countries' markets haven't always done as well. If you expect lower future returns, a lower withdrawal rate is prudent.
4. It doesn't account for taxes well. If your money is in a taxable account, you're paying capital gains on withdrawals. $40k in expenses might mean needing to withdraw $48-50k pre-tax.
What to use instead
The 4% rule is a solid starting point, not a rigid prescription. In practice:
- Be flexible. If the market drops 30%, cut your spending for a year or two. This dramatically improves survival rates.
- Use guardrails. Set a floor (never withdraw less than X) and a ceiling (never withdraw more than Y), adjusting based on portfolio performance.
- Consider a bond tent. Hold 2-3 years of expenses in bonds/cash to avoid selling stocks during downturns.
- Run Monte Carlo simulations. The calculator on this site runs 1,000 random scenarios to show you the range of possible outcomes.
The bottom line
25× your annual expenses is a good target. It's not perfect, and if you're retiring before 50 you should aim for 28-33× to be safe. But as a rule of thumb for answering "how much is enough?" — multiply your expenses by 25 and you're in the right ballpark.
Plug your numbers into the retirement calculator to see how long it'll take you to get there.