4% Rule
A retirement guideline suggesting you can withdraw 4% of your portfolio in the first year, adjusted for inflation thereafter, with low risk of running out.
The 4% rule is a popular benchmark for how much you need to retire and how much you can safely spend. It implies that a portfolio of 25 times your annual expenses can sustain roughly 4% annual withdrawals, inflation-adjusted, over a long retirement. It originates from the Trinity Study, which tested historical market returns. The rule is a starting point, not a guarantee: long bear markets, fees, and longer retirements can require a more conservative rate. It is central to FIRE planning, where the goal is to reach 25 times expenses as fast as possible.
Example
If you spend $40,000 a year, the 4% rule suggests a target portfolio of $1,000,000 ($40,000 times 25), allowing a $40,000 first-year withdrawal.
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