Also called: Four percent rule, Bengen rule.
Bengen tested historical US market data and found that a 4% initial withdrawal, adjusted annually for inflation, survived every 30-year window in his sample with a stock-heavy allocation. That result became the most quoted number in retirement planning and, predictably, the most misapplied.
What the rule actually assumes is narrow: a 30-year horizon, a specific US-heavy allocation, no fees, no taxes, and rigid spending that never responds to what markets do. Relax any of those and the number moves. Add a 1% annual fee and you are meaningfully closer to a 3% rule.
It also describes a starting point, not an ongoing rate. The 4% applies to the balance on day one. Subsequent withdrawals track inflation, not the portfolio, which is exactly what makes the rule dangerous after a bad first decade — spending holds steady while the balance falls.
Used properly it is a useful reference: a way to convert a target income into a rough portfolio size. Used as a plan it ignores the flexibility that most retirees actually have, and which our simulations suggest is worth more than any allocation tweak.
Research on this
See also
- Safe withdrawal rate — The share of a portfolio’s starting value you can withdraw in year one of retirement, then raise with inflation each year, without running out over your horizon.
- Guardrails (Guyton-Klinger) — A withdrawal policy that starts from fixed spending, then cuts it when the withdrawal rate breaches an upper band and raises it when it falls below a lower one.
- Sequence of returns risk — The risk that the order in which investment returns arrive damages a plan, even when the average return is unchanged. It matters most when money is being withdrawn.