4% rule

The 4% rule (sometimes called the rule of 25) is a widely-cited retirement spend-down rule-of-thumb, credited to William Bengen, that says that a retiree can safely withdraw an inflation-adjusted 4% of their investments each year during a 30-year retirement. Since its publishing in the Journal of Financial Planning in 1994, the rule has been widely discussed in retirement planning literature and popular media.

The 4% rule was created by simulating 30-year retirement periods using the historical performance of the United States markets starting in 1926. The analysis assumed the retiree's portfolio was in a tax free account composed of United States stocks and bonds. Bengen picked 4% as the highest rate that never failed in the dataset.

In 1998, Bengen's rule was further supported and popularized by the Trinity study.

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