The 4% withdrawal rule for retirement

What is the 4% withdrawal rule?

The 4% rule for retirement savings is a guideline that many retirees use to estimate how much money they can withdraw each year without having to worry about running out of money. Popularized in the 1990s, this oft-cited rule states that you can safely withdraw 4% of your portfolio during your first year of retirement and then adjust for inflation after that. The idea being that, over the course of a 30-year retirement, investment returns would offset some of your withdrawals and reduce the impact they would have on your financial security.

What does the 4% rule do?

The 4% rule is designed to protect your portfolio and help make sure that you never run out of money in retirement. By pulling out only 4% of your total assets and allowing the rest to grow, you can budget a safe withdrawal rate for 30 years or more.

How does the 4% rule calculation work?

One of the best things about the 4% rule is its simplicity. In the first year of retirement, you calculate the total value of your retirement savings and withdraw 4% of that amount. (Since this rule focuses on portfolio sustainability, it does not include Social Security, pensions, annuities, or other recurring sources of income.) In year two—and every year afterwards—your withdrawal is adjusted for inflation. For example, if you have $1 million in savings, your first-year withdrawal would be $40,000. Assuming a 3.1% inflation rate, your second-year withdrawal would increase to $41,240 and would continue to be adjusted annually for inflation throughout retirement.

Hypothetical 5-Year Withdrawal Schedule

The 4% rule makes some assumptions

When an analyst sets up a general financial framework like the 4% rule, it is formulated to apply to as many people as possible. That means the creator has to average out quite a lot. It’s important to understand the model so you can apply it to your specific circumstances. The 4% rule is based on some important assumptions:

You’ll live 30 years past your retirement date: The 4% withdrawal rule was designed for the classic retirement age of 62 to 65 years with the idea that you’ll potentially need retirement savings into your 90s. Today, retirements take all shapes and forms. Some people want to keep working and stay busy into their 70s. Others aim to retire early. Plus, health conditions and medical advances may affect how long you’ll need those savings.

You have a specific investment portfolio: This guideline is more than 30  years old and based on an evenly balanced portfolio of 50% stocks and 50% bonds. Since diversified portfolios have become more common, it’s likely that your asset mix—and potential returns—could be very different than what was originally assumed.

It’s based on historical market data: The 4% rule relies on what the market has done in the past, but it’s impossible to predict exactly how the market will react to the challenges the future brings.

How long will my money last using the 4% rule?

While everyone’s situation will be different, Morningstar conducted an analysis of the impact a 4% withdrawal rate would have on a $1 million portfolio. According to their calculations, a 4% rate coupled with annual inflation adjustments would have a 90% chance of lasting at least 30 years. Since this estimate was based on a relatively conservative portfolio (50-50 mix of stocks and bonds), Morningstar concluded that a more aggressive approach might be able to extend the life of the portfolio even farther.¹

Pros and cons of the 4% rule

Financial professionals debate whether the 4% rule is the correct way to approach retirement. There are both detractors and proponents.

Ultimately, there is no one right answer for everyone. The key is to plan for your specific retirement, not some generic retirement. That means considering your desires, your family’s needs, and things that might disrupt or change your plans—like unexpected medical costs or welcoming new grandchildren.

Pro: It’s a relatively safe withdrawal strategy

While it’s not guaranteed, multiple studies show that if you follow the 4% rule, your retirement savings should last for at least 30 years. Of course, there’s always a chance that you will live longer than 30 years after your retirement. If that’s a concern, you can use this calculator to estimate how long your savings will last in retirement.

Con: Your yearly budget may not be enough

If you have been aggressive in saving for retirement, you may be able to live comfortably on 4% of your savings. For others, however, it may not be enough to maintain their desired lifestyle. You might have to readjust your budget and change your lifestyle significantly to stick to the 4% withdrawal rule.

Pro: It’s easy to follow

Without a dedicated financial professional to help you with your saving and spending, planning out the finances of your entire retirement can be a difficult task. The 4% rule is a relatively straightforward guideline that most people can use.

Con: A down market could change things

Since the 4% rule relies heavily on stocks and bonds, it is subject to market fluctuations. If the market makes a wrong turn at the wrong time, it could have a drastic effect on your retirement security. That’s why most financial professionals advise diversifying your portfolio, especially as you get older.

Pro: It accounts for inflation

The 4% rule takes inflation into consideration and allows you to make annual adjustments to your withdrawals. As a result, it can help make sure you maintain your current lifestyle.

Con: It may be overly cautious

The 4% rule is based on calculations that include some of the worst market downturns in history. For some, this approach may be too conservative. For others, especially those who want to leave some of their wealth to their family, it could make sense.

Other retirement withdrawal strategies

In theory, the 4% rule should provide a safe withdrawal rate because it assumes that your investments will generate enough returns to make your savings last 30 years. But the term “safe” is relative and there may be other strategies that fit better with your goals, lifestyle, and risk profile.

Dynamic Withdrawal is a strategy that adjusts your withdrawal rate based on portfolio performance. You start with a base withdrawal rate (say 5%) and if your investments perform well you can increase that amount. If markets decline, you reduce your withdrawals so that your portfolio has time to recover.

Smile is a withdrawal strategy that is designed around typical retiree spending patterns. It assumes that retirees will need more income early in retirement (when they are the most active), less in the middle, and more during the later stages (as healthcare needs become more prominent).

Bucket Withdrawal is a strategy of dividing your retirement assets into three distinct categories (or buckets) and drawing from them at different times. The first bucket holds liquid assets like cash that you can use to cover the first 2-3 years of retirement. The second bucket holds fixed-income securities like bonds that you can use to cover the next 7-10 years. The third bucket is filled with stocks and other long-term investments that have greater growth potential and will hopefully outpace inflation.

So which withdrawal strategy is right for you? When it comes to retirement, there are no hard and fast rules. What’s right for one person may not work for another. The best way to find out is to meet with a financial professional and review all your options.

What is a good monthly retirement income?

For most people, a good monthly income is a safe retirement income—one that allows them to live the lifestyle they want without jeopardizing their future security. That’s why it’s so important to make sure you’re saving enough for retirement and have multiple sources of income to help support you. 

If you are among the half of Americans with concerns about your financial future, there are steps you can take now to help, no matter how close to retirement you are. The trick is to act quickly. The longer you put it off, the harder it can be to change. Our financial services professionals can give you a no-obligation, no-hassle assessment of your retirement outlook and suggest a path forward.

Life insurance can help with retirement

Life insurance helps protect your family’s future and financial well-being. If your policy generates cash value, you can use this resource as a safety net or to supplement your income in retirement if your life insurance needs change.³ 

Annuities offer a guaranteed⁴ income stream

If you are concerned about outliving your retirement savings, consider converting a portion of your nest egg into an income annuity. That way, you will be sure to have a steady stream of income that you can count on in retirement. Best of all, these payments are guaranteed to last—often for life—and will help satisfy your required minimum distributions.

Planning for your retirement is one of the most important things you can do. Get started today with guidance and a helping hand from one of our knowledgeable financial services professionals.

The 4% withdrawal rule FAQs

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¹“How long your money could last using the 4% rule,” SmartAsset.com, April 1, 2025.
²“The National Retirement Risk Index with Varying Claiming Ages,” Center for Retirement Research at Boston College, November 7, 2023.
³Accessing the policy’s cash value will reduce the available cash surrender value and death benefit.
⁴All guarantees are backed by the claims-paying ability of the issuer.