The 4% Rule for Retirement: What It Assumes, Where It May Not Fit, and How to Test Your Own Withdrawal Rate

The 4% rule, also called the 4 percent rule, is a planning guideline for how much a retiree might withdraw from a portfolio each year. The first-year withdrawal is set at 4% of the portfolio's value at retirement. After that, the dollar amount is typically increased each year for inflation, whether the portfolio rose or fell in the meantime.

The table below uses round, made-up numbers to show the mechanics. It is not a projection, a recommendation, or a description of any person's portfolio.

The guideline is a reference point for a conversation, not a spending instruction. It describes one pattern of withdrawals and does not adjust for taxes, changing spending, or the other income a household may have.

The guideline traces to financial planner William Bengen's October 1994 article in the Journal of Financial Planning. He used historical investment returns and inflation data to test how long a portfolio lasted under different first-year withdrawal rates, illustrated with a sample portfolio of half stocks and half intermediate-term Treasury notes. Source: Bengen, Determining Withdrawal Rates Using Historical Data (FPA reprint), reviewed November 11, 2026.

In an essay on his own website, Bengen describes his 1994 finding as a first-year withdrawal rate of 4.15% from a tax-advantaged account that had not failed to last at least thirty years in the historical periods he studied. He explains that this figure was set by a single retiree who began in late 1968, a period of repeated stock declines and high inflation, and that he did not call it a rule. The label came later. He also says his later research has produced higher figures, which shows that the number depends on the method and assumptions used. Source: Bengen, The 4% Rule, reviewed November 11, 2026.

A 1998 study by three Trinity University finance professors, published in the AAII Journal, measured how often portfolios of U.S. stocks and bonds lasted through past payout periods of 15 to 30 years at withdrawal rates from 3% to 12%. The authors noted that no single withdrawal rate appears appropriate for every investor, that the study did not adjust for taxes or transaction costs, and that choosing a rate is a matter of planning that is likely to need mid-course corrections rather than a contract. Source: Cooley, Hubbard and Walz, Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable, reviewed November 11, 2026.

Both studies rest on past U.S. market experience. Past results do not predict future results, and a historical test cannot capture conditions that have not yet occurred.

The guideline is built on simplifying assumptions. Each one can be a reasonable starting point, and each one can differ from real life.

A retirement of about 30 years. The research most often cited tests payout periods of up to about 30 years. A shorter or longer retirement changes the picture.

U.S. stocks and bonds. The studies used historical U.S. returns for a mix of stocks and bonds. A household that holds different investments, or a more concentrated portfolio, may see different results.

Level spending that rises with inflation. The guideline assumes the same purchasing power is withdrawn each year regardless of market results. Many households spend differently over time.

A fixed starting point. The 4% is applied once, to the portfolio value at retirement. It is not a rate recalculated each year.

Taxes and costs handled separately. The Trinity study did not adjust for taxes or transaction costs, and Bengen's description refers to a tax-advantaged account. Taxes and investment costs may reduce the amount available to spend.

The simplicity is what makes the guideline easy to understand, and the same simplifications are why it works as a starting point rather than a plan.

Early retirement. A retirement that begins in a person's 50s may need to last well beyond 30 years, which is longer than the periods the research most often cited was built around. Retiring before age 59½ can also change the rules for taking money from retirement accounts. The IRS explains that distributions from traditional and Roth IRAs before age 59½ are generally subject to a 10% additional tax unless an exception applies. Source: IRS, Topic no. 557, Additional tax on early distributions from traditional and Roth IRAs, reviewed November 11, 2026.

Variable spending. Many households spend more in some years than others, and health care or other one-time costs can interrupt a level pattern. A level, inflation-adjusted amount may be too high in one year and too low in another. A household that is able to reduce spending after weak markets may hold a different starting rate than one that cannot, although reducing spending can be difficult in practice.

Sequence of returns. The order of returns matters when money is being withdrawn. Weak markets early in retirement can reduce a portfolio more than the same markets later, because withdrawals continue from a smaller balance. Bengen notes that retirees who started in other periods could have withdrawn more, so a guideline built around the weakest historical start date may leave money unspent in many scenarios. No historical test can rule out a worse period.

Taxes on withdrawals. A $40,000 withdrawal from a pre-tax account is not $40,000 of spendable income after tax. The next section explains why.

Other income and goals. A pension, Social Security, or part-time work can reduce how much a portfolio needs to provide. A goal to leave money to heirs can have the opposite effect.

Competing goals. A household with older children may be weighing education costs against retirement funding. Education spending in the years before retirement can lower the starting portfolio, which lowers the dollar amount a percentage-based guideline produces. The guideline does not address how to balance the two goals.

The guideline counts a withdrawal as a withdrawal, however it is taxed. In practice, tax treatment differs by account type. The IRS states that distributions from traditional IRAs and most workplace plans are generally included in taxable income, and that qualified distributions from a Roth IRA are tax-free when the requirements are met. Withdrawals from a taxable account are taxed according to the gains and income involved. Sources: IRS, Retirement topics, Required minimum distributions (RMDs) and IRS, Roth IRAs, reviewed November 11, 2026.

That means two households with the same illustrative $40,000 withdrawal can report very different taxable income depending on which accounts they draw from. The retirement withdrawal order guide walks through how taxable, pre-tax, and Roth accounts are treated and why no single sequence fits every household.

Withdrawal choices can also affect other thresholds. A larger pre-tax withdrawal raises adjusted gross income, which can affect how much of Social Security benefits is taxed and which Medicare premium tier applies. The AGI vs taxable income explainer shows which income figure each threshold uses.

Required minimum distributions can set a floor on pre-tax withdrawals later in retirement. The IRS states that withdrawals from traditional IRAs and most workplace plans generally must begin at age 73, and the starting age is scheduled to change by birth year under SECURE 2.0. A tax professional can confirm the age that applies. Source: IRS, Retirement plan and IRA required minimum distributions FAQs, reviewed November 11, 2026.

Some households review a Roth conversion in lower-income years, which may reduce future pre-tax balances but adds taxable income when it occurs and cannot be reversed. The Roth conversion guide explains the trade-offs. State income tax rules also differ by state, so a household that moves in retirement may want to review the rules for the state where it will live.

Each of these choices has a trade-off. An approach that lowers tax in one year can raise it in another, and future income, account values, and tax law cannot be known in advance.

A personal test starts with the household's own numbers instead of a single percentage. Planners often work through the steps below, and the answers can change as circumstances change.

Define the spending need. Separate essential spending from flexible spending and one-time costs, and identify income that does not come from the portfolio, such as a pension or Social Security.

Convert the need into a rate. Divide the amount the portfolio must provide by the portfolio's value to see the implied withdrawal rate, then compare it with the 4% guideline as a reference point rather than a target. Illustrative only: needing $30,000 a year from a $1,000,000 portfolio implies a 3% rate, and needing $50,000 implies 5%. These round numbers are made up and are not a recommendation.

Stress test the result. Review how the plan would hold up under weak early returns, higher inflation, and a longer life, and how far spending would need to change in each case. Any modeled result is an estimate based on assumptions, not a prediction.

Add taxes and costs. Estimate withdrawals by account type, including required distributions, Social Security taxation, Medicare premium thresholds, and investment costs.

Decide what could flex. Identify which spending, retirement timing, or income could be adjusted, and what change in markets or spending would prompt a review. The Trinity authors noted that mid-course corrections are likely to be needed.

Review on a schedule. Many households revisit the plan at least once a year. The result is a range of reasonable withdrawal amounts and a set of conditions to monitor, not a single number that is certain to hold.

1. What is my expected retirement age, and how many years might the portfolio need to support spending?

2. Which spending is essential, and which is flexible or occasional?

3. What income will come from sources other than the portfolio, such as Social Security or a pension, and when does each begin?

4. What withdrawal rate does my spending need imply, and how does it compare with 4% as a reference point?

5. How are my accounts divided among taxable, pre-tax, and Roth, and how would a withdrawal from each be taxed?

6. How would weak markets or higher inflation in the first few years change my plan?

7. What could I adjust if markets decline, such as spending, the timing of retirement, or part-time income?

8. When do required minimum distributions begin for me, and how large might they be if pre-tax balances are left untouched?

9. How would competing goals, such as education funding for older children or leaving money to heirs, change the amount available?

10. How often will we revisit the withdrawal rate, and who coordinates the information between my planner and my tax professional?

This checklist is educational. It does not decide what is appropriate for any household, and results depend on individual circumstances and current law.

The 4% rule sits at the point where retirement income, taxes, and spending meet. The retirement planning page describes how Ankerstar Wealth approaches retirement income and Social Security and Medicare timing. The retirement withdrawal order guide, the Roth conversion guide, and the AGI vs taxable income explainer cover related decisions, and the calculators page offers estimation aids. A calculator result is an estimate based on the inputs entered, not a prediction.

If you are a few years from retirement and would like to talk through how these questions may apply to your household, you are welcome to request a conversation about retirement planning.

The opinions expressed here are those of Steve Ankerstar, CFP®, member of the Financial Planning Association, and are not personal financial, tax, or legal advice. The 4% rule is a historical planning guideline, not a guarantee or a recommendation. Tax rules and thresholds change, and results depend on individual circumstances. Consult a qualified tax professional before acting.