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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
Last updated Β·
By The Let's Go FIRE team
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Table of contents(5)
  1. 01Why 4% and not 5 or 6?
  2. 024 levers that move your SWR
  3. 03Where the 4% number comes from
  4. 04The trap of a 1998 rule
  5. 05Key Takeaways

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

  1. Retirement horizon: 30 years supports 4%, 40 years or more drops to 3 to 3.5%. Every extra decade eats into the safety margin.
  2. 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.
  3. 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%.
  4. 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%.
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Frequently asked questions

The 4% rule comes from the Trinity Study (1998): a 60/40 portfolio survives 30 years of inflation-adjusted annual withdrawals with 95% success. Still valid today for 'classic' 30-year retirements, but to adjust for early FIRE (40+ years β†’ drop to 3-3.5%).

For young FIRE with a 40+ year horizon, modern studies (Pfau, Kitces) recommend 3 to 3.5% rather than 4%. The safety margin protects against an unfavorable returns sequence and sustained inflation. At 3%: FIRE Number = Expenses Γ— 33.3.

Yes. A 100% stocks allocation tolerates a higher SWR (~4-5%) over 30 years thanks to long-term return, but volatility increases sequence risk. 60/40 or 70/30 are the SWR sweet spots. 100% bonds collapses quickly (max ~2.5% over 30 years).

'Guardrails' strategy: if your portfolio drops 20%+, reduce expenses by 10-15% temporarily. Flexible withdrawals (VPW, Variable Percentage Withdrawal) tolerate a higher initial SWR (~4.5%) in exchange for accepted variability. Rigidity kills FIRE plans.

Sources and references