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The 4% rule: how much to withdraw without draining your capital

$40,000 a year on $1M, inflation-indexed. The method, its limits, and the right rate for a 40-year retirement.

Beginner

8 min

Foundations

Why 4% and not 5 or 6?

Picture $1,000,000 sitting in an investment account. You live off it. How much can you withdraw in year one without risking zero before the end? That question has a numeric answer: the Safe Withdrawal Rate (SWR), the share of capital you can pull each year while the portfolio stays invested.

4 levers that move your SWR

Retirement horizon: 30 years supports 4%, 40 years or more drops to 3 to 3.5%. Every extra decade eats into the safety margin.
Asset allocation: 70% stocks sustains an SWR near 4%, 100% bonds caps at 2.5% over 30 years. Stocks fund the SWR, bonds steady it.
Spending flexibility: able to cut 10 to 20% in a crash? You can target a higher starting SWR (4.5%). Rigid spending? Stay under 3.5%.
Management fees: 1% in annual fees costs roughly 0.5% of SWR. Over 30 years, that equals 7 to 8 years of withdrawals lost.

Where the 4% number comes from

Three Trinity University researchers (1998) tested every possible retirement start date since 1925 against a 60% stocks / 40% bonds portfolio. The verdict: withdrawing 4% of the starting capital in year one, then adjusting for inflation each year, survived 30 years in 95% of the cases tested. In practice, $1,000,000 yields $40,000 in year one, about $40,800 the year after if inflation ran at 2%, and so on.

The trap of a 1998 rule

The Trinity Study tests 30 years, not 45. If you retire FIRE at 40 with a 50-year horizon, 4% turns aggressive: the success rate drops below 85% in recent modeling by Pfau and Kitces. The longer the retirement, the more every half-point of SWR matters.

Key Takeaways

1The 4% rule held for 30 years in 95% of Trinity backtests (60/40, 1925-1995).
2Retirement of 40 years or more: 3 to 3.5% instead of 4%. Half a point makes the difference.
31% in annual fees costs about 0.5% of SWR. Pick low-fee ETFs (< 0.3%).
4Cutting expenses 10 to 20% during a crash allows a starting SWR up to 4.5%.

Our recommendation

FIRE before 65 with 40 or more years of retirement: aim for 3.25% rather than 4%. On $1,000,000, that is $32,500 a year instead of $40,000. You trade $7,500 a year for a success probability that climbs from 85% to over 95% on long-horizon models.