The 4% Rule for Retirement
The 4% rule is a popular retirement guideline that dictates withdrawing 4% of your total retirement savings in your first year, and then adjusting that dollar amount annually for inflation. By following this formula, your portfolio should theoretically sustain you for a 30-year retirement without running out of money. [ 1 , 2 , 3 ] How It Works Calculate Year 1: Add up all your retirement investments (e.g., 401(k), IRA). Multiply that total by 0.04 to find your first year's allowance. [ 1 ] Adjust for Inflation: In every subsequent year, take the previous year's withdrawal amount and increase it by the rate of inflation. [ 1 ] The "Multiply by 25" Shortcut: If you already know how much annual income you need from your savings, you can multiply that number by 25 to find your total retirement savings goal (e.g., $60,000 × 25 = $1.5 million) . [ 1 ] Portfolio Assumptions The rule relies on historical market data and was originally built assuming: [ 1 , 2 ] A por...