4% rule
Personal FinanceDefinition
Heuristic that withdrawing 4% of starting portfolio value annually (adjusted for inflation) supports ~30 years of retirement. From William Bengen's 1994 study using 50/50 portfolios over 1926-1976.
Modern critics: low yields and high valuations imply lower safe withdrawal rates (3.0-3.5%). Wade Pfau, Big ERN, and others have published refinements. Most retirees do better with dynamic spending rules than fixed 4% withdrawals.
Modern critics: low yields and high valuations imply lower safe withdrawal rates (3.0-3.5%). Wade Pfau, Big ERN, and others have published refinements. Most retirees do better with dynamic spending rules than fixed 4% withdrawals.
Example
$1M portfolio at retirement → $40K/year first year, indexed up with CPI thereafter. Survives 95%+ of historical 30-year periods.