The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”

In the world of early retirees, we have a concept that goes by names like “The 4% rule”, or “The 4% Safe Withdrawal Rate”, or simply “The SWR.”

As with all things financial, it’s the subject of plenty of controversy, and we’ll get to that (and then punch it flat) later. But for now, for those new to the concept, let’s define the Safe Withdrawal Rate:

The Safe Withdrawal Rate is the maximum rate at which you can spend your retirement savings, such that you don’t run out in your lifetime.

That sounds nice and simple, but many people consider it an unpredictable thing to nail down.

After all, you don’t know what sort of rollercoaster rides the economy will take your retirement savings on, and you also don’t know what rate of inflation will persist through your lifetime. Will a box of eggs cost $6.00 a dozen when you’re 65, or will it be closer to $60? So how can we possibly know how much money we will need to live on in retirement?

The answers you get to this question vary widely.

Financial beginners (about 95% of the population) tend to randomly just throw out a number between 5-100 million dollars.

Financial advisers who aren’t Mustachians will tell you that it depends on your pre-retirement income, (with the implicit assumption that you are spending most of what you earn) and the end answer will be somewhere between 2 and 10 million.

Financial Independence enthusiasts will have the closest-to-correct answer: Take your annual spending, and multiply it by somewhere between 20 and 30. That’s your retirement number.

If you use the number 25, you’re implicitly using a 4% Safe Withdrawal Rate, which is my own personal favorite number.

So where does this magic number come from?

At the most basic level, you can think of it like this: imagine you have your ‘stash of retirement savings invested in stocks or other assets. They pay dividends and appreciate in price at a total rate of 7% per year, before inflation. Inflation eats 3% on average, leaving you with 4% to spend reliably, forever.

I can already hear a chorus of whines and rattling keyboards starting up, so let’s qualify that statement. I admit it: that is the idealized and simplified version.

In reality, stocks go up and down every year, and so does inflation. Over a long multi-decade period like the gigantic retirement you and I will be enjoying, enormous things have happened in the past. The Great Depression. The World Wars, Vietnam, and the Cold War. The abandonment of the gold standard for US currency and years of 10%+ inflation and 20%+ interest rates. More recently, the great financial crash and a slicing in half of of real estate and stock values.

If you happened to retire in 1921 on a mostly-stock nest egg, you would have experienced an enormous stock run-up for the first eight years of your retirement. You’d be so rich by the time the 1929 crash and the Great Depression hit, that you’d barely notice the trouble in the streets from your rosewood-paneled tea room.

On the other hand, if you retired in early 2000 while holding stocks, you saw an immediate and huge drop in your savings along with low dividend yields – and your ‘stash may be have had some scary times in the early days, and again around 2009. Would you still have any money left today?

In other words – the sequencing of booms and crashes matters. Ideally, you want to reach your magic retirement number in a time of nice, reasonable stock prices, just before the start of another long boom so that your retirement starts off on a good foot. But you can’t predict these things in advance. So again, how do we find the right answer?

Luckily, various Early Retirement Ninjas have done the work for us. They analyzed what would have happened for a hypothetical person who spent 30 years in retirement between the years 1925-1955. then 1926-1956, 1927-1957, and so on.

They gave this imaginary retiree a mixture of 50% stocks and 50% 5-year US government bonds, a fairly sensible asset allocation. Then they forced the retiree to spend an ever-increasing amount of his portfolio each year, starting with an initial percentage, then indexed automatically to inflation as defined by the Consumer Price Index (CPI).

This simple but important series of calculations was called the Trinity Study,  and since then it has been updated, tweaked, and reported on, and it’s still the subject of lots of debate today. Wade Pfau is one reasonable voice in the industry, and he created the following useful chart showing what the maximum safe withdrawal rate would have been for various retirement years:

As you can see, the 4% value is actually somewhat of a worst-case scenario in the 65 year period covered in the study. In many years, retirees could have spent 5% or more of their savings each year, and still ended up with a growing surplus.

This brings me to a critical point: this study defines “success” as not going broke during a 30-year test period. To people like you and me who will enjoy 60-year retirements, that would not be successful – we want our money to last much longer than 30 years.

Luckily, the math in this case is pretty interesting: there is very little difference between a 30-year period, and an infinite year period, when determining how long your money will last. It’s much like a 30-year mortgage, where almost all of your payment is interest. Drop your payment by just $199 per month, and suddenly you’ve got a thousand-year mortgage that will literally take you 1000 years to pay off. Increase the payment by a few hundred, and you have a fifteen year payoff!

In other words, above 30 years, the length of your retirement barely affects the safe withdrawal rate calculations.

So far, we’re liking the 4% rule quite a bit, right? But yet whenever I mention it, I get complaints. Let’s review a few of them:

  • The trinity study is based on a prosperity anomaly: the United States during its boom years. You can’t project good times like that into the future, because we’re just about to enter the Doom Years!
  • Economic growth and stock appreciation was all based on cheap fossil fuels. How will this all look after Peak Oil hits us!?
  • You can’t take a one-size-fits-all rule and apply it to something as varied as an economy and an individual’s life! My health care costs could go up! Hyperinflation could strike!
  • Even at a 4% withdrawal rate, there’s still a chance of portfolio failure. That means I’ll be flat broke and out on the street in my old age. I recommend doubling your savings, and going for a 2% SWR instead because there’s never been a failure in that scenario!
  • This is all wrong! Waaah, waaah!

That’s all well and good. While there are solid economic analyses that I believe can out-argue the points above, I’m not patient or clever enough to re-create them here. Pessimists are free to enjoy their pessimism and even write about it on their own blogs.

Instead of debating unprovable points like those above, we can completely squash them with our own much more powerful list of points:

The trinity study assumes a retiree will:

  • never earn any more money through part-time work or self-employment projects
  • never collect a single dollar from social security or any other pension plan
  • never adjust spending to account for economic reality like a huge recession
  • never substitute goods to compensate for inflation or price fluctuation (vacation in a closer place one year during  an oil price spike, or switch to almond milk in the event of a dairy milk embargo).
  • never collect any inheritance from the passing of parents or other family members
  • and never do what most old people tend to do according to studies – spend less as they age

In short, they are assuming a bunch of drooling Complete Antimustachians. You and I are Mustachians, meaning we have far more flexibility in our lifestyles. In short, we have designed a Safety Margin into our lives that is wider than the average person’s entire retirement plan.

So now that we’re feeling good about the 4% rule again, let’s bring the point home:

Far from being a risky proposition, planning for 4% Safe Withdrawal rate is actually the most conservative method of retirement saving I could possibly recommend.

To apply it in real life, just take your annual spending level, and multiply it by 25. That’s how much you need to retire, at the most. A $25,000 spender like me needs $625,000. I’ve got more than that, plus various safety margins in the lifestyle, so all is good.

Without undue risk, and as long as you have skills that can be used to earn money eventually in the future (hint: you do), I can even advocate an SWR of 5%. In other words, get your expenses down to $25k, and you can quit your job on $500k or less. Then you can use the methods described in First Retire, then Get Rich to gradually increase your safety margin (and effectively decrease your withdrawal rate) as you age.

So there’s no need to debate. 4% is a perfectly good answer, which means 25 times your annual expenses is a perfectly good goal to save for. Along the way, you might find your annual expenses melting away, which makes things ever-more-attainable (as shown in the shockingly simple math behind early retirement post). But worry, you must not.

And if you’re ready to play with the numbers even further, check out the FIREcalc website. It’s basically like owning your own Trinity Study machine, except you can tweak variables (look at the tabs at the top of the page). In the link provided, I used this data:

  • 500,000 portfolio
  • 25,000 annual spending (5% withdrawal rate).

All alone, a plan like that over 60 years of retirement only has a 45% success rate, historically speaking.

But if you make adjustments which include:

  • $8,000 per year of social security starting about 25 years from now
  • “Bernicke’s Reality Retirement plan” of dropping spending slightly with age
  • Just $3,000 per year in fooling-around income

You’re already at an over 90% success rate. Another hundred or two dollars per month and you have a 100% chance of success, even without invoking many of my other bullet points above.

So that, at last is the long-awaited Safe Withdrawal Rate article.

In the hands of financial infants, the rule is dangerous and scary. But in the hands of Mustachians, nothing is scary. Planning for a 4% withdrawal rate is a shiny, bulletproof limousine of a retirement plan and you can ride it all the way to the party at Mr. Money Mustache’s house.

  • Scott March 22, 2017, 2:34 am


    I’m confused by one aspect: housing as a component of spending.

    In your post, you say that under the 4% rule a “$25,000 spender” like you would only need $625,000. That makes sense as a general matter, but I presume that you are excluding housing from your $25k per year number, i.e. you have a home that is paid off and so are not including rent/mortgage. But if this is correct, then don’t you have to include the full amount of equity in the home in calculating the 4% number, e.g., if you live in a $400k house then your actual retirement number is not $625k, but actually $1,025,000 ($400k to cover housing, and $625k to cover the $25k yearly expenses)?

    Thanks for any clarification.

    • Mr. Money Mustache April 3, 2017, 4:51 pm

      Yes, you are correct Scott! My lifestyle is roughly a $1M life rather than a $625k one at present levels.

  • Geert March 30, 2017, 7:20 am

    Hi MMM,

    I found another a great website about portfolio management, financial independence and SWR, pointing out some non-conventional ways to boost your safe (perpetual) withdrawal rate by asset allocation. The following article is a great introduction for MMM readers:

  • James March 31, 2017, 4:26 pm

    Hello folks (And MMM)-

    I enjoy reading your articles- it’s been fun seeing that you and others share so many of my world-views! However, I’m curious about this one: I keep seeing the “4% rule” pop up on more main-stream wealth management sites, but to me in my mid-30s (and theoretically anyone with some time left on their hands before hitting 65-70) the more I read about it, the more it seems like the path of madness. So I was somewhat curious to see this article on your site, as it seems there are other proven routes to passive income generation; why would you start with the assumption you’ll be drawing-down your principal; what about dividends?? As you said in your 2011 post, “A millionaire is made 10 bucks at a time.” I’ve been looking into dividends/dividend-growth investing for the last 10 years as an alternative way to generate passive income in retirement; I regard it somewhat as a hobby, like playing poker. Stock-picking aside, on-average many of the larger vanguard index funds currently pay approximately 2%; people complain “yields are low”. However, these vanguard funds increase the dividend regularly; approaching doubling it every 5 years. If you don’t worry about the principal, because you’ll never touch/withdraw it, and just focus on the income stream it throws off, you’re at 4% yield-on-cost in 5 years. 8% in 10 yrs, 16% in 15 yrs, 32% in 20 yrs, etc. All this income is theoretically within an IRA, so you’ll pay no taxes on any of this until RMD time. If/when you re-invest these dividends generated within the account as time goes on, the income stream compounds faster. Plus, you should be able to cut out “management fees”, because who needs those guys; this isn’t magic. By choosing a low-cost brokerage which just charges per trade, and just sticking with the plan, returns go up even more.

    People don’t seem to like “stock picking” and regard it as foolish and risky. However, by focusing on the largest, most market-dominant companies who provide basic, boring services and products (electric/water/telecom utilities, consumer staples, railroads, etc) risk can be reduced. Ala Warren Buffet’s style, you buy the big ones and hold on for 30 years or more; investing is supposed to be boring. For folks who like index funds, there’s potentially room for both individual stocks and some larger positions in index funds. Where to start? There are already lists of companies which pay predictable dividends, and increase them reliably. For folks’ interest/use:
    Here’s one: http://www.simplysafedividends.com/dividend-aristocrats/
    David Fish, who is on Seeking Alpha, has compiled a fantastic list of US Dividend Champions(available in both PDF and Excel formats): http://www.dripinvesting.org/tools/tools.asp

    Everyone interested in an individual-stock approach should do their own research, but I included these lists because they’re a great starting point. Anyways.. just seems to me that anyone approaching retirements who’s not *generating* at least a 4% annual return should consider other options. Plus, now your kids/grand-kids will be set for life(if that’s a goal), because the principal’s still there throwing off ever-increasing cash flow. Food for thought perhaps?

  • Nicole W June 8, 2017, 6:32 am


    I discovered FIRE about 2 years ago, after living a naturally frugal life for the first 5 years of adulthood (post-college). I’m now 29, always working to increase my savings rate, and have a road-map to FIRE that makes me excited every day!

    One thing I can’t figure out, and if this has been answered elsewhere please feel free to just share a link, is how to actually take out the 4% I’m going to live on. I currently max my 403B (nonprofit version of 401K), Roth IRA, and dump my after-tax savings in the Betterment. As I’m nearing the $170K Net worth number, I’m noticing the 403B and Roth IRA is where a lot of the financial growth is happening. So when I reach my FIRE number, I expect majority of it will be in the 403B and Roth IRA.

    So, when the strategy is to withdraw 4% from principle balance and allow principle balance to make 5%+, are most FIRE members paying taxes on that 4% every month they withdrawal? If so, I’ll need to re-adjust my FIRE map. If not, are the FIRE folks saving their principle balance after-taxes?

    Any insight would be super helpful. I’m sure it’s discussed somewhere in the community but just can’t seem to find the answer yet.

    Thanks in advance,
    Nicole g

  • Sarah June 27, 2017, 12:34 pm

    I’m enjoying reading through all of your old posts, pretty much agree with everything here and it is nice to not feel like a crazy person (or not the only one anyway). My family (2 adults, 2 children) has no debt. Mortgage paid off, no car loans, no student loans, no credit cards etc. Our income is fairly low, under $50K total per year. I’d like to start investing, but I find it terrifying–not so much the risks as the ethics, like what are they doing with my money? I assume they are mining for diamonds, drilling for oil, and generally funding global destruction while the investors profit. Am I wrong? Are there ethical investments that are also profitable, or do I have to stuff my money in a mattress if I want to do little harm? I would appreciate any comments that could point me in the right direction. Thanks! I am woefully ignorant in this area.

  • Kevin Monk June 29, 2017, 7:20 am

    I am a firm believer that money is nothing more than pieces of paper or imaginary numbers. It would be quite risky given our troubled times to rely solely on funds. If you really want to make sure that you are secure in your old age, you have to vary your wealth. It’s not okay to put all your eggs in one basket, after all.
    I think your best bet would be to acquire assets: vintage items like a car that would get more valuable as time goes by, real estate, stocks, etc.
    Also, you should be aware that, in addition to unpredictable trends like hyperinflation, unexpected costs will surely come up and you have to plan for that also.

  • Vishal September 18, 2017, 5:57 pm

    Hello Mr. Money Mustache

    I am an avid reader of FI blogs. I am looking for a resource which points me to one of the best places in the US to retire from tax and cost of living perspective. To be specific, I would prefer to pay minimum state taxes on my retirement withdrawals and also minimal property taxes. Of course, cost of living has to be in check as well. What I don’t mind is sales tax because we are a low consumption household. Can you point me to a blog/article from the FI community which talks about this?

    I understand that during retirement, I can convert a small portion of Pretax money in 401K/IRA to Roth each year and that will prevent overall taxation but I am looking for more US state specific information instead of the taxation hacks which I am already aware of.


    • ThisTooShallPass November 26, 2017, 7:13 am

      Hi Vishal,

      I am in the similar boat as you are, did you find any ideas, material on “best” place to retire with low state and property taxes? Texas or me is pretty close to what I was looking for.

      I am also thinking about 401k conversation to Roth ( ladering strategy).
      Message me, perhaps we can talk. vishy.k.rao@gmail.com

  • ThisTooShallPass November 26, 2017, 7:00 am

    The $500,000 described in this article – Is that including IRA and 401k value or outside that?

    If it is inclusive, how does one manage to take $20k without penalties and such?

    Is this still valid with the raising health care costs today?

    Thanks for the article and everyone’s comments.

    • ThisTooShallPass November 26, 2017, 7:16 am

      Edit to the above post: $500k or $625k

  • Nice joy November 26, 2017, 9:28 am

    1 Keep five years worth expense in ROTH in 401 k or IRA so you can retire at 55.
    2 You may be able to take money out of your current traditional 401k at 55 without paying 10% penalty [ You must retire at 55 not before to get this option]
    3 You may take HELOC for short time.
    4 My employer lets me keep the medical plan with me after I retire if I had the plan for last five final years, so I can keep the lower premium.
    5 Also, start converting traditional 401 k to Roth and take a smaller tax hit after you stop working
    6 Plan early and build your ROTH enough to cover for a few years, so you have the freedom to choose when you get there.
    These are some of the options worth exploring.

    • ThisTooShallPass November 27, 2017, 10:17 am

      Thanks NiceJoy for your response. With that response, I am assuming $500k or 625k includes ROTH/IRA and 401k.
      I like your point 5 “Also, start converting traditional 401 k to Roth and take a smaller tax hit after you stop working” – This is what I had in my mind as well. I am no way near the 55 year mark so this makes sense for me.

      will check with my employer on point 4 – good stuff. Thanks again!

  • Stop Ironing Shirts November 26, 2017, 7:07 pm

    I’m enjoying going back through your old posts and this is pure gold. 80-90% is a hell of a success rate for an early retiree because of how easy it is for someone to earn an extra $5,000 to $10,000 in early retirement and they’ll still probably have social security. There’s a difference between managing risk and fear, fear causes people to run a 2 or 3% withdrawal rate.

  • Jac December 4, 2017, 4:28 pm

    My wife (an avid reader of your’s) and I are stumped on a detail of the 4% rule. Is the withdrawal rate a percentage of the current value of your assets? Or the value when you retire? For example, if I retire with a $1Million portfolio, I can expect to withdraw $40k annually [essentially] forever? Or 4% of the present value of my assets, which changes… so if they increase after the first year, my annual withdrawal for that year can increase as well?

    The hypothetical that got me thinking is if I have $1M invested and retire the day before some major downturn, versus if I had retired one day later and my savings were (for example) halfed? It doesn’t make sense to me that in the first case I could withdraw $40k annually, when there is no actual difference in my portfolio.


    • Mr. Money Mustache December 4, 2017, 5:03 pm

      In its most formal form, it’s based on the value at your retirement date, then indexing that up with inflation each year.

      If you are willing to keep your spending increases to that amount, AND scale down in the event of the first market crash, you’ll do even better.

      • Maxb August 28, 2018, 7:02 am

        Absolutly… There are other calculators out there that confirm that any “scaling back” one can do when returns were not great will help out gtreatly in the long run.

  • Aleksandar M. March 21, 2018, 1:52 am

    Hypothetically, if the interest rate of long term US government bonds is more then 7% would you still invest in the index fund?

  • Lee April 9, 2018, 4:26 am

    Was not quite sure where to put this comment, but this seems like as good a place as any . . .

    I’ve noticed that you and several of your FI peers (jlcollinsnh, 1500Days etc.) seem to very specifically use Vanguard index funds as the basis of your stocks and bonds investment portfolio. I am curious as to why you should have all landed at the same gate, so to speak? Is there a sponsorship or endorsement deal going on here that you might be willing to share about, or is it down to something else?

    I appreciate that the V funds tend to have extremely low fees, and after reading lots about ‘the 4% rule’, that’s clearly important, but I thought I’d ask in as least confrontational way as I can muster to see if there were other reasons for choosing these funds specifically?

    Hope that’s not too antsy! – great blog and great outcome! Inspirational stuff.

    • Mr. Money Mustache April 10, 2018, 4:17 pm

      Hi Lee,

      No sponsorship – in fact it’s quite the opposite as most financial companies will pay bloggers for referrals, but Vanguard specifically does not. So when you see someone recommend Vanguard, it is almost certainly genuine.

      I recommend them because their fees are the lowest (or tied for the lowest in some cases), they are member-owned rather than a profit-driven corporation, and they are old and solid. And the founder, John Bogle, has lived a life of trying to improve the world through Vanguard and other efforts.

  • Bob S. April 11, 2018, 1:32 pm

    I’m a little confused on the idea of how much I need to retire (Yes I read the above article). Basically I am asking will my principal will grow every year AFTER I retire if I get 7% return, minus 3% inflation and then withdraw 4%. From that math it would equal 0 at the end, I get that. But I am not consuming my entire retirement amount.

    So am I thinking about this correctly if I plan on having 1,000,000 when I retire (I know, I know, I don’t need that much, but just an example). And each month I withdraw $5,800 (70,000/year… yes I know, I know) then at the end of the year the 1,000,000 minus 70,0000 would result in $930,000 that was increasing in interest (roughly $38K). So at the start of the new year I would have $930,000 principal + $38k interest and then from there it would start all over again adding more interest to the principal each year?

    Trying to wrap my head around this.

    • Phil B May 3, 2018, 10:11 am

      Working with $1 M the 4% rule gives you $40 k to withdraw the first year. At the end of the year you have $1.03 M from the remaining 3% gain. This is equivalent in constant dollars accounting for 3% inflation. Next year you withdraw $41.2 k and maintain the same lifestyle. Alternatively, you could become 3% more badass and withdraw the same amount.

      I prefer William Berntein’s estimate of expected market return; the dividend plus historical growth rate of the economy in real dollars (2%). If you use the S&P 500 dividend that is currently 1.9% + 2% = 3.9%. Ok, it’s almost identical, but I like that it would adjust to significant changes in market conditions.

  • Cole Cotton April 18, 2018, 12:13 pm

    What advice would you give to someone about saving for retirement who is still in college? How does the timing of saving for retirement play a role?

    • Thriftychemist May 2, 2018, 4:55 pm

      Save what you can as early as you can. The earlier you start, the more years of compound interest you have on your side. Psychologically, it’s a very low-pressure environment to save in because everyone expects college students to be just scraping by. In reality, you can live comfortably and establish a low baseline of spending that you won’t have to increase for the rest of your life. Your money will work for you and grow faster than you can earn it once you get the snowball rolling.

    • Courtney May 10, 2018, 3:35 pm

      If you have loans, start paying them off now while they’re not accruing interest. Compound interest can help your savings, and compound interest can screw you on your student loans. I learned this too late. I would pay them off ASAP, before saving. But if you don’t have student loans, then save, save, save.

  • xylia z May 2, 2018, 11:44 am

    Hello to whoever may provide me with some insight,

    With all this talk on saving rats to expected years to retirement, the safe withdrawal rate, and determining how much money you will need in retirement, no one has yet carefully explained where this is to all be stored.

    Specifically, when people retire at 65 they have some sort of retirement plan like 401k, ROTH/Traditional IRA, or taxable brokerage account filled with funds they’ve put away over the years to spend in retirement.

    But for those who want to become financially independent. Where are all these funds from you saving rate suppose to go? Your bank account? Or is there some non traditional retirement plans FI people use store their early retirement funds in?

    • Thriftychemist May 2, 2018, 4:52 pm

      Xylia, I’m not sure if you caught the gist of the article, but here’s the key point of the Trinity Study took into account: “They gave this imaginary retiree a mixture of 50% stocks and 50% 5-year US government bonds, a fairly sensible asset allocation.”

      If you have a high tolerance for volatility (the prices rise and fall frequently) and you’re willing to hold on even when your apparent net worth drops off a cliff, then you can invest more in stocks (high risk, high reward). If you’re nervous or think you would panic and sell when the market is low, then a higher percentage of bonds is called for (low risk, low reward).

      As far as what vehicle you use to invest, most would recommend maxing out your tax-deferred accounts, then putting the rest of what you invest into low-fee taxable accounts (Vanguard is a very common recommendation and the standard everyone should compare to). There’s lots of talk about how to do this over on the MMM forums. I’d recommend searching over there and seeing what others invest in. There’s a wide variety, but the simplest is a balance of stocks and bonds. Defer tax as much as you can, then pay what you have to.

  • Chaz May 23, 2018, 9:55 am

    I know this is an old comment thread, but either I’m using firecalc wrong or its broken. I put in $100k spending, $1 portfolio, and 100 years and it still says “FIRECalc found that 0 cycles failed, for a success rate of 100.0%.” which cant possibly to correct. Am I missing something here?

  • Maxb August 28, 2018, 6:54 am

    Be careful when testing the 4% withdrawal based on historical data… Many of us (including myself) tested it against US data (and maybe Canadian data). Try it with other countries (ie European data is readily available).

    You’ll be surprised to see it often doesn’t work in other places in the world, and were not talking 3rd world countries. That is because they have had deeper recessions that what we have seen in North America.

    I’m ready to retire, but have chosen a number closer to 3% just to be a bit safer…

  • Mike January 21, 2019, 12:51 pm

    Hi great post. Thanks for putting together so much useful info. I just started watching your Youtube videos and I want to better understand the 4% rule. If your investments are worth $625000 and you work out that you will only need 25k to live that’s no problem, just take out 4%, but what do you do when your investments fluctuate (rise above 625000 or fall below it)? Do you still withdrawal the amount needed to live (25k) or do you just try to adjust your lifestyle to fit the 4% withdrawal rule? -Mike

    • Mr. Money Mustache January 21, 2019, 1:28 pm

      Hi Mike! The basic idea of the 4% rule is that you simply lock in that $25k on the first year and pretend it’s a lifelong salary, and ignore your investment balance. The next year, you bump up your salary about 3% to account for inflation, and so on.

      If you are even cautious and cut back your spending a tiny bit during any major market crash years (or bring in any income from side jobs), you are expanding your margin of safety even more.

  • Maisie February 26, 2019, 12:23 am

    So if my yearly outgoings amount to about £10,000, I could actually retire on £250,000? That doesn’t even seem that unreasonable (if I got a career job).

  • Swati March 8, 2019, 8:53 am

    Very smooth blog MMM! Thanks for the delightful sarcasm and goldmine of information.
    I’m a bit confused with the 4% rule. If my investments yield 4% returns after inflation and fees, and that represents my yearly spending, why would I need to withdraw from my principal? I can just keep harnessing my yearly returns (provided I invested wisely and no economic catastrophe falls upon us), right? Sure my stash won’t grow but as long as the pay check is coming….
    Withdrawing from the stash sounds dangerous and limiting (what if I live to be 100?) so I probably misunderstood something.
    Thanks for clarifying!

    • Chris April 11, 2022, 10:11 pm

      Nah, you understood right. If your investments yield 4% after inflation and fees, you can either withdraw 4% anyway and probably still be fine, or call upon some of your Mustachian attributes to reduce the amount you withdraw and supplement difference.

      Remember, one year withdrawing 4% will erode the principal, but the next year it may not… particularly if the return on investment was say 20%+ the second year. And this is the point. Over time, withdrawing 4% is considered pretty safe. Add Mustachian skills to the mix, and it’s flawless.

  • Papa Foxtrot April 17, 2019, 3:40 pm

    I support the 4% rule. In fact, what I personally recommend is investing in high dividend yielding stocks. These are resistant to recessions and the dividends pay out each time for a certain interval. The trick is to invest in enough of these that these dividends can provide a large fraction of your annual income, if not even your entire annual income. This is not impossible. I know of many high dividend yielding index funds and stocks in which you can expect 3% dividend minimum. If you invest in enough stocks, they are high dividend AND THEY MAINTAIN THAT DIVIDEND you could live almost entirely off the dividends, and if you even have an emergency you can always sell some shares. However, there are taxes if you do not set it in a Roth IRA, but if you invest in a Roth IRA, every dividend can never be taxed.

  • Theora May 13, 2019, 4:45 pm

    My house is paid off and I have retirement funds. Should I plan on 4% of the funds,or 4% of funds + some extra because I have house equity? With Soc.Sec.and 4% I can live comfortably. With a little extra, I can travel a bit more. Travel in N America will be by Prius and tent. US Nat Parks are awesome, looking forward to seeing Canada’s.

  • Jake May 22, 2019, 6:23 am

    I love this blog and the entire FIRE community. I fully believe this is possible and that this math works out. The problem is that it is all based on a few assumptions that not many of these blogs talk about:

    1) You have been making smart financial decisions and working hard since 18 (or earlier). SOOOOO many people I know don’t have a real full time job until 25, 26, or later and have $40k+ in student debt by that time. Saying “well that’s your fault, you should have made better decisions,” although true, is not helpful. We should not be telling people in that situation that they can retire at 30, because they can’t.
    2) You can’t have a big family. If you want to have a big family, all of these numbers and timelines get bumped. The average family size in America is less than 2 kids, so maybe it does not affect the majority of readers, but setting aside enough savings to pay for living expenses, good schools, etc. for 3, 4, 5 or more kids is very expensive. With every kid you have, your grocery, medical, transportation, and other bills all go up significantly. I would rather have a big family than an early retirement and that is a decision I am consciously making, and again this may not affect many readers, but it should be noted.
    3) Cutting expenses isn’t just hard, it is almost impossible. The cutting half your expenses mentality is simply not plausible for many people raised in modern America. I know many many many people that if given the choice between keeping their iPhone, TV, Netflix, and daily Starbucks or retiring at 40, they would pick the former every time. People like their luxuries. People can navigate social media and spend hours watching Hulu but they can’t learn to write a check or do their homework before taking out a bad loan.

    My overall point is that the math isn’t really the heart of the issue. The real thing keeping people from financial independence is decades of cultural influences that tell our young people to go into debt to get a degree, buy a house they can’t afford, and so on. Until that changes, the FIRE idea will be a pipe dream for nearly every reader over 25 who has already made these decisions. You HAVE to educate your kids on finances early on or you will doom them to the same 9-5, 40 year boring career that you and your dad and your grandpa all had.

    • Mr. Money Mustache May 22, 2019, 4:56 pm

      I agree with you, except the fact that this blog (and the thousand plus other FIRE sites and podcasts now around), are now reaching many tens of millions of people of all ages, and having major effects on at least several million people. So, it’s already working much better than I could have hoped!

      • Jake May 23, 2019, 5:07 am

        For sure, and I sincerely thank you and all the others out there for putting this info into easy-to-understand and readily available formats. Just saying that if you are 25-30 with more than two kids and more than $25k in college debt, a 10-15 year, 9-5 job kind of career is not going to cut it. The FIRE stuff is great, but we also need more people (and maybe you already do this) preaching about not going to college or some alternative.

  • Indishce July 31, 2019, 5:28 am

    Hi MMM,
    Love your blog!
    Would love to hear on how these numbers change for a developing nation? I’m Indian.
    Returns vary wildly, Inflation is higher than US, guv pays zilch for health,education, old-age,etc.

  • Jason Wong August 13, 2019, 5:17 pm

    The Trinity Study calculates that a 3% withdrawal rate has a 100% success rate for 100%, 75% and 50% stock portfolio.


  • Allan Bartlett October 28, 2019, 11:47 pm

    I didn’t see anywhere in the original post where tax liability of all this deferred income is discussed. Taxes will almost certainly be higher in the future due to all the debt and unfounded liabilities the government is incurring. I’d much rather be taking this retirement cash flow and income from tax free and tax exempt vehicles like Roth IRAs and life insurance.

  • Jason November 18, 2019, 5:31 am

    I think this is one of the points that is often missed by people when planning. Many people plan to just live off of the dividend, which creates incredibly high requirements for retiring.

    Take, for example, VOO (my personal favorite), which currently yields 1.89%. This is SUBSTANTIALLY below the “beyond safe” SWR of 3%, and still below the 4% SWR that is considered very safe. To meet this, an individual would need to double their ‘stache, which would mean working many, many more years.

    I think this is what induces paralysis in most people. The idea that you would have to withdraw against your original amount and SELL some of the stock. Fear is a powerful motivator. Thank you very much for this illustration of why more than the minimum can be doable!

  • Frinans January 27, 2020, 12:03 pm

    The 4% rule is awesome because it is so simple. Sure it might not be 100% accurate, but it does the trick when it comes to opening your eyes.

  • Vince April 25, 2020, 8:27 am

    I don’t get this part :
    “If you happened to retire in 1921 on a mostly-stock nest egg, you would have experienced an enormous stock run-up for the first eight years of your retirement. You’d be so rich by the time the 1929 crash and the Great Depression hit, that you’d barely notice the trouble in the streets from your rosewood-paneled tea room.”

    If you retire and only sell 4% each year, wouldn’t your stock be affected after the crash? Is it implied in this situation that this person will have a big amount of urgent funds set aside?

    • Mr. Money Mustache April 26, 2020, 8:42 am

      Hi Vince,

      Yes, your stock will be affected in the sense that the share prices would be a bit lower, meaning you have to sell a bit more of your shares during times of low market prices to get the same cashflow. But there is enough safety margin in the 4% guideline that it all still would have worked out in that situation – and most others throughout stock market history.

  • CaptainFI April 26, 2020, 10:23 pm

    An oldie but a goodie! Thanks MMM for setting such an awesome level of foundational knowledge. I love the ‘random article’ feature and use it to brush up daily on my ‘Mustachianism! (and yes, the aviation moustache is going great, I even got some free moustache wax for the enhanced Mr Biggles look!)

    It’s just honestly so simple, the 4% rule or 25 times your annual earnings. I wish I was told about this in school, or that I discovered this when I started full time work at 16. That is 12 years ago now, and I could have had enough to retire two times over with my savings rate of 80%! Instead I spent money chasing dreams and expensive pilot training (nearly AUD $300K all up!) as well as dumb shit like motorbikes to impress girls. Thankfully I discovered the MMM site and after many punches to the face have reigned the spending in and cranked the index fund investing right up.

    As an example of how small the world is, I recently flew someone who lives in Boulder, Colorado. He had never heard of you, and I spent the majority of the flight excitedly showing him all of your content. I really hope he tracks you down and joins in on one of your Longmont Bike Nights

    Capt. FI

  • Chris December 11, 2020, 2:34 am

    When you figure your annual spending amount to multiply by 25, you should exclude your mortgage, right? It will be a long time before I own my house outright, but I intend to settle down in a paid off home when I retire and that long term period is what I’m really planning for. So, my annual spending should only be the money that I spend on stuff?

    • brandon December 14, 2020, 9:17 am

      It’s 25x your projected yearly budget needs, so if you plan on having the mortgage paid off by retirement, then you don’t need funds to be paying a debt that won’t exist!

  • Mark Barker January 31, 2021, 3:20 pm

    Great article! I take a contrarian approach the ‘safe’ withdrawal rate. In fact, I don’t plan on withdrawing any principal from my retirement accounts during retirement. Before I retire, I will switch my entire portfolio from growth to income and live only off the dividends (Full disclosure: I also have two pensions that total $100k in annual income when I reach 62).

    I don’t like bonds because of the interest rate risk, so I plan on investing in U.S./International dividend stocks, business development companies (look them up – the yields are good), preferred stocks, and REITs – each using an ETF. You can build a nice portfolio yielding 5-6% a year in dividends with these assets and there is no reason to sell the underlying investments – hence no need to take the principal out. I am currently in the process of converting all my pre-tax IRAs to my Roth IRA and plan on being done before retirement age. And with a Roth IRA, there is no requirement that you ever take a principal distribution.

    Anyway, just my two cents ;-)

  • Angie September 19, 2021, 1:51 pm

    Yeah I think 4% sounds about right given historical empirical data.

    And even if, *gasp*, you have a few years where your 4% spending is going to give your net worth a little bit a deficit, you’ll either:
    1) Make it back in the future years when the market recovers, and then some. OR
    2) You can always hustle a little bit and make up for the deficit.

    • Chris April 11, 2022, 10:27 pm

      The perks of being Mustachian are endless…

  • Tall Paul July 24, 2022, 3:02 pm

    Great post! I know a young couple that just retired with some money and a couple of rental properties. He’s 39 and she is 32. They aren’t really familiar with the 4% rule or any of the extensive new information out there on safe withdrawal rates. They aren’t sure they’ll make it, but they figure they can go back to work if necessary. They don’t even have a budget! They literally don’t know how much they spend. As you can tell, they are idiots! Oh wait. That’s my wife and me 19 years ago. Update: We have a lot more money. Sold the rental properties for quality-of-life reasons. We still don’t know how much we spend as we are reasonable humans and drive a Subaru and have zero desire to keep track of every dollar. We are also unreasonable humans and I own 15K worth of mountain bikes! Fortunately, we are both healthy but the one thing I know for sure is that good health is temporary. 100% chance sooner or later it’s gone. If we can do this, you can do this!

  • Christian September 8, 2022, 12:38 pm

    Hi Mr. Money Mustache!

    Thank you for the contribution to the Netflix Get Smart With Money Doc.

    I live in Stockholm, Sweden.

    What Robo investment company would you recommend investing in within Europe?

    All the best,

  • clay shentrup December 4, 2022, 12:58 pm

    the formula is just =NPER(4%,yearly_spending,-principal).

    for instance, if you spend 100k a year, then a 2m principal lasts 41 years.

    • Mr. Money Mustache December 6, 2022, 2:40 pm

      Thanks for the suggestion Clay – I had never heard of that NPER function but it can be useful in certain situations.

      In the case of early retirement, if you assume 4% sustainable returns and set your withdrawals to that level or less (which would be 80k per year on a 2M nest egg), you will get “#NUM! because the expected survival period is infinite.

      NPER becomes useful if you want to plan a faster-than-4% withdrawal rate, and have a very rough idea of how quickly the principal will deplete. This gets more useful the older you get – for example, your example is a 5% withdrawal rate. Which means a 48-year-old like myself might expect such a strategy to get me through roughly until age 89. When the number gets well above 100, it makes sense to consider higher and higher withdrawal rates, if you have a use for the extra money.

  • Aryan March 4, 2023, 11:07 am

    Would the 4% Rule be applicable to the country like India too, wherein the inflation is 6%?. If not, what % Rule will then be applicable?

  • Tim June 5, 2023, 5:24 pm

    I track my household spending closely. For the purpose of the exercise described above, whereby I compare 25-40 times my “spending” to my nest egg, do I include income taxes in that annual spending? What about health care premiums?

  • Malcolm November 19, 2023, 4:32 pm

    Just another twist
    I noted a long running post on the Bogleheads forum where 30/70 got you over the line as much as 70/30 -50/50 is the compromise-John Bogles actuall Asset Allocation


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