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Will You Run Out of Money Before You Run Out of Life? The Simple “4% Rule” Every Retiree Should Know

Writer: Stephen Loke
Stephen Loke
1 hour ago
18 min read
4% rule explained: a retired couple's hands holding an hourglass of gold coins

The short answer: The 4% rule says you can take 4% of your savings in your first year of retirement, then raise that dollar amount by inflation every year after, and history says your money should last at least 30 years. On $1,000,000 that is $40,000 in year one. In 2026, Morningstar puts the safe starting figure at 3.9%, while the rule's creator, Bill Bengen, now says 4.7%. Your own number depends on how long you need the money to last, your fees and how flexible you can be.



The 3 a.m. question nobody wants to ask out loud


It usually arrives in the middle of the night.


You have worked for 30 or 40 years. You have saved. Maybe you have also lost money in the stock market along the way, and that loss still stings. Now retirement is close, and one cold question keeps you awake:


"What if I run out of money before I run out of life?"


It is not a silly fear. People are living longer than ever. Prices keep rising. And unlike a salary, a retirement pot does not refill itself when you spend it.


Here is the good news. There is a simple rule of thumb, tested against nearly a hundred years of real market history, that gives you a starting answer in about 10 seconds. It is called the 4% rule.


In this guide, I will explain the 4% rule in plain English, show you exactly where it came from, walk you through real numbers year by year, and show you the five traps that can quietly break it. By the end, you will know how much you can spend, how much you need, and what to do tonight to protect yourself.


What is the 4% rule? The 4% rule explained in 3 simple steps


The 4% rule is a guide for how much you can withdraw from your investments each year in retirement without running out of money for at least 30 years.


It works in three steps.


Step 1. Add up your retirement investments on the day you retire. Say it is $1,000,000.


Step 2. Take 4% of that in your first year. That is $40,000.


Step 3. Every year after that, take the same dollar amount plus inflation. You do not recalculate 4% of your new balance. If prices rose 3%, your second year withdrawal becomes $41,200, no matter what the market did.


That third step is the part most people get wrong. The 4% is only used once, on day one. After that, you are simply keeping your spending power steady.


What the 4% rule looks like over 30 years


Here is a $1,000,000 portfolio following the rule, assuming prices rise 3% a year:


Year of retirement

Yearly withdrawal

Monthly equivalent

Year 1

$40,000

$3,333

Year 2

$41,200

$3,433

Year 5

$45,020

$3,752

Year 10

$52,191

$4,349

Year 20

$70,140

$5,845

Year 30

$94,263

$7,855


Notice something important. Your withdrawals more than double over 30 years, yet the rule says the money still lasts. That is because your portfolio keeps growing while you spend it, as long as it stays properly invested.


Remember this: The 4% rule is a withdrawal plan, not an investment return. It does not mean "my investments earn 4%". It means "I take out 4% in year one, then follow inflation".


Where the 4% rule came from: the rocket scientist who sold soda


The 4% rule was not invented by a bank or a fund salesman. It came from a curious engineer.


William "Bill" Bengen studied aeronautics and astronautics at MIT. He never became a rocket engineer. Instead, he spent years running his family's soft-drink bottling business in New York. After the family sold the business, he moved to southern California and in 1989 opened his own financial planning firm.


His clients kept asking him the same question you are asking now: how much can I safely spend?


At the time, many planners used a lazy shortcut. They took the stock market's average return, subtracted inflation, and said, "Spend the difference." Bengen did not trust averages. Averages hide the bad years, and retirees do not get to live in the average. They live through the actual years, in the actual order.


So he did something nobody had done properly before. He tested every 30-year retirement period in US market history, starting in 1926. He looked for the highest starting withdrawal rate that would have survived even the worst one, including retirements that began just before the Great Depression and the brutal inflation of the 1970s.


In October 1994, he published the result in the Journal of Financial Planning. The answer was about 4.15%. Rounded down, the world got the "4% rule". He also concluded that a portfolio of roughly 50% to 75% stocks, with the rest in bonds, could have supported 4% inflation-adjusted withdrawals for at least 35 years.


The Trinity Study made it famous


A few years later, three finance professors at Trinity University in Texas, Philip Cooley, Carl Hubbard and Daniel Walz, tested the idea in a different way. Instead of looking only for the worst case, they asked: "How often did each withdrawal rate succeed?"


Their work became known as the Trinity Study. Here is what their updated 1999 tables showed for 30-year retirements, with withdrawals raised every year for inflation:


4% rule explained: Trinity Study success rates for 3% to 8% withdrawal rates over 30 years
Source: Cooley, Hubbard and Walz (1999), US stocks and corporate bonds, 1926 to 1997. "Success" means money was still left after 30 years.

Look at how fast the success rate falls once you go above 4%. With a 50/50 portfolio, a 4% start survived 95% of all 30-year periods. At 6%, it was close to a coin toss. At 8%, it failed 9 times out of 10.


The real lesson of the Trinity Study: The famous number is not really about 4%. It is about what is NOT safe. Taking 7% or 8% a year from a retirement pot has a long history of ending in disaster.


Why 4% and not 7%? Because the rule is built for your worst day


Here is something most articles never tell you.


In the same 1999 study, the professors also worked out the withdrawal rate that would have used up the money exactly at the 30-year mark for each starting year. For a portfolio of 60% stocks, 30% bonds and 10% cash, the average was about 6.2%. The lowest was 4.0%.


In other words, in most of history, retirees could have spent a lot more than 4%. The 4% rule is not the typical outcome. It is the floor, the number that survived the worst start dates history has thrown at us so far.


Bengen himself later said many retirees who stuck to the very safest rate "cheated themselves", because in good times they could have spent more. But nobody knows in advance whether they are retiring into a good decade or a terrible one. The 4% rule is insurance against the terrible one.


And if you have lost money in the market before, you already know: the terrible decade is always possible.


How much money do you need to retire? The "25 times" rule


The 4% rule has a twin that is even more useful while you are still saving.


If you can safely take 4% a year, then you need 25 times your yearly spending (because 100 ÷ 4 = 25). If you want extra safety and use 3.5%, you need about 28.6 times.


Important: this is the money your investments must provide. Subtract any pension, Social Security, annuity or rental income first.


Yearly income you need from investments

Savings needed at 4% (25×)

Savings needed at 3.5% (28.6×)

$20,000

$500,000

$571,000

$30,000

$750,000

$857,000

$40,000

$1,000,000

$1,143,000

$50,000

$1,250,000

$1,429,000

$60,000

$1,500,000

$1,714,000


A real family that lived on the 25× rule


The best-known real-life user of this math is Pete Adeney, the Canadian-born software engineer behind the blog Mr. Money Mustache. He and his wife saved hard and invested, and he retired in 2005 at age 30, a story covered by The Washington Post and others. Their plan rested on the 4% rule. A 2016 New Yorker profile reported that their family of three lived on roughly $24,000 a year, so by the 25× math they needed about $600,000 invested.


You do not have to live like a frugal 30-year-old engineer to use the lesson. The lesson is this: your spending decides your number. Every $1,000 a year you do not need in retirement cuts the savings you need by $25,000.


Try this: Write down what you truly spend in a year, minus any pension or government income. Multiply by 25. That is your target. If you are 50 or older and that number scares you, read You Lost Money in the Stock Market at 50. Is It Too Late to Retire Comfortably?


The silent killer: why the order of your returns matters more than the average


This is the most important section in the whole article. Please read it slowly.


Two retirees can earn the exact same average return over 25 years, follow the exact same 4% rule, and end up with completely different lives. One dies wealthy. The other runs out of money.


The difference is the order in which the good and bad years arrive. Experts call this sequence-of-returns risk.


I ran the numbers using the real yearly returns of the S&P 500, dividends included, from 2000 to 2025 (data from NYU Stern professor Aswath Damodaran). Both retirees start with $1,000,000, put it all in the S&P 500, take $40,000 in year one and raise it by 3% a year.


  • Retiree A retires in January 2000 and lives through the real order: the dot-com crash, then 2008.

  • Retiree B gets the same 26 years of returns, in reverse order: the great bull market first, the crashes last.


Sequence of returns risk chart: same S&P 500 returns in different order under the 4% rule
Same 26 years of real S&P 500 returns (2000 to 2025), different order. $1,000,000 start, $40,000 first-year withdrawal raised 3% a year, 100% stocks. Illustration only, not a forecast.

Retiree B finishes with about $4.4 million. Retiree A's account is empty early in year 24.


Same returns. Same rule. The only difference was luck in timing.


Why? When the market falls in your first few years, you are forced to sell shares at low prices just to pay your bills. Those shares are gone forever. They are not there to bounce back when the market recovers. Early losses do permanent damage. Late losses barely matter, because by then your pot has grown.


Two lessons from the chart


Lesson No. 1: Bonds are your shock absorber. When I re-ran Retiree A with 60% stocks and 40% US government bonds instead of 100% stocks, the portfolio was still worth about $965,000 after 26 years, despite retiring right before two crashes. The 4% rule was always tested on a stock and bond mix, never on 100% stocks.


Lesson No. 2: The first 5 to 10 years are the danger zone. This is when a crash hurts most, and when panic selling does the most damage. If you have ever sold at the bottom before, read Why Smart, Hard-Working People Sell at the Very Bottom before you retire, not after.


Is the 4% rule still safe in 2026? Two experts, two answers


The 4% rule is more than 30 years old. So is it still right? Today, two of the most respected voices in retirement research disagree, in opposite directions.


Safe withdrawal rate 2026 chart comparing Morningstar 3.9%, the 4% rule and Bengen's 4.7%
Sources: Morningstar State of Retirement Income (Dec 2025), Bengen (1994) and Bengen, A Richer Retirement (2025).

Morningstar says 3.9%


Every year, Morningstar's researchers work out a safe starting rate using their forecasts for future stock and bond returns, rather than only the past. Their latest report, published in December 2025, puts it at 3.9% for people retiring in 2026. That assumes 30 years of inflation-adjusted withdrawals, a portfolio of 30% to 50% stocks, and a 90% chance of money left at the end.


Their number moves from year to year. Earlier editions ranged from 3.3% to 4.0%, and the previous one was 3.7%. Morningstar also stresses that you should not change your rate every year. You lock in the figure for the year you retire, then follow inflation.


The same research found that retirees willing to let their spending move with the market could start much higher, up to about 5.7% with the most flexible methods.


Bengen now says 4.7%


The man who invented the rule went the other way. In his 2025 book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, Bill Bengen raised his worst-case safe rate for 30 years to 4.7%.


Why the jump? His original 1994 test used only two ingredients: big US company stocks and government bonds. His new research uses a broader mix of seven asset types, including smaller companies and international stocks, in a portfolio of about 55% stocks, 40% bonds and 5% cash. More diversification, he found, supported higher safe withdrawals. Even then, he calls 4.7% a worst case, based on someone who retired in October 1968, just before years of high inflation.


On $1,000,000, 4.7% means $47,000 in year one instead of $40,000. That is $7,000 a year more to live on.


So who is right?


Both, depending on what you assume. Morningstar looks forward and is cautious. Bengen looks back over a century of history with a wider portfolio.


One warning matters for 2026. Research by Bengen and others links expensive starting markets to lower safe withdrawal rates. During 2026, the S&P 500's Shiller CAPE ratio, a common measure of how pricey stocks are, had climbed above 40 for the first time since the dot-com bubble. That does not predict a crash next month. It does mean today's new retirees are not starting from a cheap market, and that argues for caution in your first few years.


My plain-English take: Treat 4% as a sensible middle. Lean toward 3.5% to 3.9% if your plan has no flexibility. Only move toward 4.5% or more if you hold a well-diversified mix and you are genuinely willing to cut back after bad years.


5 ways the 4% rule can fail you (and how to avoid each one)


The 4% rule is simple. That is its strength, and also its danger. It was built on assumptions that may not match your life. Here are the five that catch people out.


No. 1: You retire early


The rule was tested for 30 years. If you retire at 50, your money may need to last 40 or 50 years.


Bengen has estimated that stretching a plan from 30 to 50 years cuts the safe rate by about 13%. Apply that to Morningstar's 3.9% and you land near 3.4%. For early retirees, something around 3.25% to 3.5% is a more honest starting point.


No. 2: You pay high fees


The research assumed you earn the full market return. Real people pay fund fees, platform fees and adviser fees.


Research by financial planner Michael Kitces found that each 1% of yearly fees cuts your safe withdrawal rate by roughly 0.4%. So a 4% rule becomes about 3.6% if you pay 1% a year, and about 3.2% if you pay 2%.


Chart showing how investment fees reduce the 4% rule safe withdrawal income on $1 million
Based on Kitces' finding that every 1% in yearly fees cuts the safe withdrawal rate by about 0.4%.

On $1,000,000, the gap between a 0.1% index fund and a 1% adviser is $3,600 a year in safe income. Raised with 3% inflation over 30 years, that adds up to more than $170,000 of spending you never get to enjoy.


Want to see what your own fees cost you? Try the free calculators on my Tools page, and read The 3 Silent Portfolio Killers Wiping Out Retail Investors.


No. 3: You forget about tax


Bengen has explained that his original rule assumed a tax-deferred retirement account, so the 4% is a before-tax number. If tax is taken from your withdrawals, your spending money is less than 4%.


If you live outside the United States and own US funds, there is also the 30% US withholding tax on dividends that many investors never notice. I explain the legal way to reduce it in The 30% Dividend Tax You Didn't Know You Pay on US Stocks.


No. 4: Your market is not America's market


This one is rarely mentioned, and it matters to readers all over the world.


The 4% rule was built on US data, and the US had one of the best-performing stock markets of the 20th century. In 2010, retirement researcher Wade Pfau tested the rule on 109 years of data from 17 developed countries. Even with generous assumptions, a 4% withdrawal would have been safe in only 4 of the 17 countries. A fixed 50/50 stock and bond mix failed at some point in all of them.


The most painful example: a Japanese retiree in 1937, holding half stocks and half short-term government bills, would have run out of money in about 3 years, as war and hyperinflation destroyed savings.


The lesson is not "avoid investing". It is: don't bet your retirement on one country. A low-cost fund that owns hundreds of companies, like an S&P 500 index fund, or a global index fund, spreads that risk. See How to Invest in the S&P 500 If You Live Outside the United States.


No. 5: You panic, or you hold the wrong mix


The 4% rule only works if you stay invested in a sensible stock and bond mix through the crashes. In the Trinity Study, an all-bond portfolio at 4% lasted 30 years only 19% of the time. Bonds alone simply could not keep up with inflation.


On the other side, selling everything after a crash locks in the loss and wrecks the maths. If the market drops hard during your retirement, follow a plan, not your fear. Here is what calm investors do: The Market Just Dropped 20%. Here's What Calm Investors Do Next.


4 upgrades that make your money last longer


The plain 4% rule is rigid. Real life does not have to be. These four upgrades are well supported by research and easy to understand.


Upgrade No. 1: Use "guardrails"


In 2006, financial planners Jonathan Guyton and William Klinger published decision rules now known as "guardrails". The idea is simple: if a strong market pushes your withdrawal rate well below where you started, give yourself a raise. If a bad market pushes it well above, take a temporary cut, often around 10%. In exchange, you can start higher than 4%. This is the same idea behind Morningstar's finding that flexible spenders can start well above 3.9%.


Upgrade No. 2: Skip the inflation raise after a losing year


One of the easiest rules to follow: in any year your portfolio loses money, don't increase your withdrawal for inflation. Keep it flat. It is a small sacrifice that protects you during exactly the years when sequence risk bites.


Upgrade No. 3: Keep a cash cushion


Many retirees keep one to two years of spending in cash or short-term deposits. When markets crash, they spend from the cushion instead of selling shares at low prices, then refill it when markets recover. It does not raise your returns, but it can stop you making the most expensive mistake of all: panic selling.


Upgrade No. 4: Build a floor of guaranteed income


The less you need from your portfolio, the safer it is. A pension, Social Security, an annuity, rental income or a little part-time work all reduce the amount you must withdraw. If they cover your basic bills, your investments only have to pay for the extras, and a bad year becomes an inconvenience instead of a crisis.


Which withdrawal rate fits you? A simple decision map


Use this map as a rough starting point, not a final answer. It brings together the research in this article: the Trinity Study for shorter retirements, Morningstar and Bengen for 30 years, and Bengen's longer-horizon estimates for early retirees.


Flowchart to choose a safe withdrawal rate based on retirement length, flexibility and fees
A rough starting point based on the research in this article. General education, not personal advice.

Why 4.5% to 5% for shorter retirements? In the Trinity data, a 5% inflation-adjusted withdrawal lasted 20 years in more than 90% of historical periods for portfolios with at least half in stocks. The shorter the time your money has to last, the more you can safely spend.


How long will your money last? A quick table


If you are already retired, or your spending is fixed, the question flips: how long will the money last at your current rate? Here is what the Trinity Study's data showed for a 50% stock, 50% bond portfolio with inflation-adjusted withdrawals (1926 to 1997):


Starting withdrawal rate

Lasted 20 years

Lasted 25 years

Lasted 30 years

3%

100% of the time

100% of the time

100% of the time

4%

100%

100%

95%

5%

92%

79%

70%

6%

75%

52%

51%

7%

55%

31%

19%


If you are taking 6% or more and you expect a long retirement, that is a red flag worth fixing now, while you still have choices.


Your "do this tonight" checklist


You do not need to solve your whole retirement tonight. But these seven steps take less than an hour and will tell you exactly where you stand.


  1. Write down your real yearly spending. Use your bank statements, not a guess.

  2. Subtract guaranteed income. Pension, Social Security, annuities, rent. What is left is what your investments must pay.

  3. Multiply that gap by 25. That is your 4% target. Multiply by 28.6 for a safer 3.5% target.

  4. Check your fees. Add up fund, platform and adviser fees. If the total is near 1% or more, your safe rate is closer to 3.6% than 4%.

  5. Check your mix. Is it a sensible blend of stocks and bonds, diversified across hundreds of companies? Or is it a handful of stocks, or all cash?

  6. Decide your "bad year" rule now. For example: "In any year my portfolio falls, I skip the inflation raise." Write it down while you are calm.

  7. Plan your first five years. This is the danger zone. Consider a one to two-year cash cushion.


If you want to see what steady, boring investing can grow into before you retire, read What $500 a Month in an S&P 500 Index Fund Becomes After 10, 20 and 30 Years, and Has the S&P 500 Ever Lost Money Over 20 Years?


Frequently asked questions about the 4% rule


It is a guide for retirement spending. In your first year of retirement, withdraw 4% of your investments. Every year after, withdraw the same dollar amount adjusted for inflation. Based on US history since 1926, this approach lasted at least 30 years in almost every period tested, using a mix of stocks and bonds.

$40,000 in the first year, or about $3,333 a month. In year two, you raise it by inflation, so with 3% inflation you would take $41,200. Bengen's newer 4.7% figure would allow $47,000, while Morningstar's more cautious 3.9% gives $39,000.

It is still a reasonable starting point, but experts disagree on the exact number. Morningstar's latest research puts the safe starting rate at 3.9% for 2026 retirees. The rule's creator, Bill Bengen, raised his estimate to 4.7% for a more diversified portfolio. Fees, taxes and retirement length matter more than the decimal point.

Multiply the yearly income you need from your investments by 25. If you need $40,000 a year on top of any pension or government income, you need about $1,000,000. For extra safety at 3.5%, multiply by about 28.6 instead, which gives roughly $1,143,000.

Not without changes. The rule was tested over 30 years. If your money must last 40 to 50 years, Bengen estimates the safe rate falls by about 13%. Many early retirees therefore start nearer 3.25% to 3.5%, and stay flexible with their spending in bad market years.

Be careful. The rule was built on US market history, which was unusually strong. Wade Pfau's study of 17 developed countries found a 4% withdrawal would have been safe in only 4 of them. Owning a broadly diversified, low-cost index fund rather than relying on one local market helps reduce this risk.

No. The research used market returns before fees, and Bengen describes the 4% as a pre-tax figure. Each 1% of yearly fees lowers the safe rate by roughly 0.4%, according to Michael Kitces. If tax is deducted from your withdrawals, your actual spending money will be lower than 4%.

It is the danger that bad market years arrive early in your retirement. Withdrawing money while prices are low forces you to sell more shares, which cannot recover later. Two retirees with the same average return can have very different outcomes depending only on the order of good and bad years.


The bottom line: you can retire with confidence, if you respect the rule's limits


The 4% rule will not make you rich. That is not its job. Its job is to answer one frightening question with something solid: how much can I spend without ending up broke?


Here is what history and today's best research tell us:


  • Start around 4% of your savings, then follow inflation.

  • Lean lower (3.5% to 3.9%) if you retire early, pay high fees or cannot cut spending.

  • Lean higher (up to about 4.7%) only with a well-diversified portfolio and a willingness to tighten your belt in bad years.

  • Guard your first 5 to 10 years. That is where most retirements are won or lost.

  • Keep costs low, stay diversified, and never sell everything in a panic.


You may have lost money in the stock market before. That does not mean you are doomed to lose it again. Most people who lose money do so not because they are foolish, but because nobody ever showed them how the game is really played, or how simple the winning strategy is.


That is exactly why I wrote a free report for you.


Free report: "Why You Lost Money in the Stock Market (And Why It Wasn't Your Fault)"


Discover the 7 Wall Street traps that quietly drain ordinary investors, and the one boring strategy the industry hopes you never discover. It is free, it takes about an hour to read, and it could change how your retirement looks.



About the author


Stephen Loke has been a student of the market for more than 15 years. He is also an agritourism entrepreneur whose farm has been featured in Bloomberg News and Asahi Shimbun.


This article is for general education only and is not personal financial advice. I am not a licensed financial adviser. Your situation is unique, so consider speaking with a licensed, fee-only professional before making retirement decisions.


Sources


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