Four Percent Rule
A retirement guideline stating that withdrawing 4% of a portfolio annually is sustainable over a 30-year retirement.
What is 4% Rule?
The four percent rule is a retirement income guideline suggesting that retirees can withdraw 4% of their investment portfolio in the first year of retirement and adjust that dollar amount for inflation each subsequent year, with a high probability of not running out of money over a 30-year retirement horizon. The rule originates from the "Trinity Study" (1998) by Cooley, Hubbard, and Walz, which analyzed historical US stock and bond market returns. It assumes a portfolio of roughly 50–75% stocks and 25–50% bonds. Critics note the rule was derived from strong US market historical returns and may be less reliable in low-return environments or for retirements longer than 30 years.
Example
A retiree with a $1.5 million portfolio applying the four percent rule would withdraw $60,000 in year one, then adjust upward for inflation each year. If inflation averages 3%, the withdrawal in year five would be approximately $69,556. Historical simulations suggest this approach had a 95%+ success rate over 30-year periods using 1926–1995 US market data.
Source: Journal of Financial Planning — Cooley, Hubbard & Walz (1998)