Introduction
The 4% rule is a simple way to figure out how much money you can spend each year in retirement without running out. The idea comes from a 1994 study by financial planner William Bengen. He found that if you withdraw 4% of your savings in your first year of retirement, then adjust that amount for inflation each year after, your money should last at least 30 years.
This 4% rule calculator works out the numbers. Enter your portfolio value, withdrawal rate, expected return, inflation rate, and how long you need your money to last. The calculator will show you how much you can withdraw each year, each month, and each week. It also tells you if your plan is sustainable or if your savings might run out too soon.
There is also a reverse calculator built in. If you know how much income you want per year, it tells you how big your portfolio needs to be. This is especially useful if you are working toward FIRE (Financial Independence, Retire Early) and need a clear savings target. Use this tool to test different scenarios, compare withdrawal rates, and build a retirement plan that works for you.
How to Use Our 4% Rule Calculator
Enter six details about your retirement savings and goals below. The calculator will show how much you can withdraw each year, whether your money will last, and how much you need to save to retire.
Portfolio Value: Enter the total amount of money you have saved and invested for retirement right now.
Annual Withdrawal Rate: Enter the percentage of your portfolio you plan to take out each year. The classic 4% rule is the default starting point.
Expected Annual Return: Enter the average yearly return you expect your investments to earn before inflation. A common estimate for a stock and bond mix is 7%.
Annual Inflation Rate: Enter how much you expect prices to rise each year. This affects how far your money goes over time. The default is 2.5%.
Retirement Duration: Enter how many years you need your money to last. For example, if you retire at 35 and plan to age 85, enter 50 years.
Desired Annual Income: Enter how much money you want to spend each year in retirement. The calculator uses this to figure out the total portfolio size you need.
Click Calculate to see your results. Click Reset to return all inputs to their default values. You can also drag the sliders or type numbers directly to update results in real time.
What Is the 4% Rule?
The 4% rule is a simple guideline for retirement spending. It says you can withdraw 4% of your total savings in your first year of retirement. Each year after that, you adjust the amount for inflation. If you follow this rule, your money should last at least 30 years.
For example, if you save $1,000,000, you would withdraw $40,000 in your first year. The next year, if prices go up by 3%, you would take out $41,200. This keeps your buying power roughly the same over time.
Where Does the 4% Rule Come From?
Financial planner William Bengen created this rule in 1994. He studied U.S. stock and bond returns going back to 1926. He found that a 4% starting withdrawal rate survived every 30-year period in that history, even through wars, recessions, and market crashes. A later study called the Trinity Study confirmed his findings.
How to Use the 4% Rule Calculator
This calculator lets you plug in your own numbers to see if your retirement plan works. You enter your current portfolio value, your chosen withdrawal rate, expected investment returns, inflation, and how long you need your money to last. It then shows you how much you can spend each year, month, and week. It also tells you whether your portfolio will survive your full retirement or run out early.
The reverse calculator works the other way. You enter how much income you want per year, and it tells you how big your portfolio needs to be.
Does the 4% Rule Always Work?
No rule works in every situation. The 4% rule assumes a mix of U.S. stocks and bonds and a 30-year retirement. If you retire early and need your money to last 40 or 50 years, you may want a lower rate like 3.25% or 3.5%. If investment returns are lower than the historical average, or if inflation runs high, 4% may be too aggressive. On the other hand, if you are flexible and can cut spending in bad years, a slightly higher rate may be fine.
Key Terms to Know
- Withdrawal rate: The percentage of your portfolio you take out each year.
- Real rate of return: Your investment return after subtracting inflation. This is the number that truly grows or shrinks your wealth.
- Portfolio depletion: The point where your savings hit zero. A good plan avoids this.
- FIRE: Stands for Financial Independence, Retire Early. People in the FIRE movement often use the 4% rule to figure out when they can stop working.
The most important number in any retirement plan is your real rate of return. If your investments earn 7% and inflation is 3%, your real return is only 4%. As long as your real return stays above your withdrawal rate, your portfolio can last a very long time, sometimes forever. A comprehensive retirement plan also accounts for Social Security and other income sources.