General information only. This historical rule is not a guarantee, retirement plan, or investment, tax, or financial recommendation.
What the rule says
The rule starts with a withdrawal equal to 4% of a portfolio in year one, then adjusts that dollar amount for inflation. It came from studies of historical U.S. stock-and-bond returns over roughly 30-year periods.
The planning shortcut
Dividing annual portfolio spending by 4% is the same as multiplying it by 25. For example, $40,000 of annual spending produces a starting estimate of $1,000,000.
Why it is not a promise
Future markets may differ from the historical sample. Time horizon, asset mix, fees, taxes, inflation, spending changes, and the order of returns all affect how long a portfolio lasts. Earlier retirement generally requires more caution.
Try a range
The Work-Optional Number calculator shows 3%, 3.5%, and 4% scenarios. Use the range to see how much the assumption changes the estimate.