4% Rule Retirement Calculator
Apply the classic 4% rule to your retirement plan. Calculate the corpus needed to withdraw 4% annually and see if your current savings are on track.
Results
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The 4% rule comes from a 1994 study by financial advisor William Bengen. He tested various withdrawal rates against historical market data going back to 1926. His finding: retirees who withdrew 4% of their portfolio in year one, then adjusted that amount for inflation each year after, never ran out of money over any 30-year period.
Here's how it works: You retire with $1 million. Year one, you withdraw $40,000 (4%). Year two, if inflation was 3%, you withdraw $41,200. Year three, you adjust again. The portfolio stays invested in stocks and bonds, growing (hopefully) faster than you're withdrawing.
The 4% rule isn't perfect. It assumes a 60/40 stock-bond portfolio, 30-year retirements, and historical market returns. People retiring in 2000 faced terrible early returns – the "sequence of returns risk" – and would have run out of money with 4% withdrawals. Some researchers now suggest 3.5% or even 3% is safer for early retirees facing 40-50 year retirements.
| Desired Monthly Income | Annual Income Needed | Required Corpus (4% Rule) |
|---|---|---|
| $2,000 | $24,000 | $600,000 |
| $3,000 | $36,000 | $900,000 |
| $4,000 | $48,000 | $1,200,000 |
| $5,000 | $60,000 | $1,500,000 |
| $7,500 | $90,000 | $2,250,000 |
| $10,000 | $120,000 | $3,000,000 |
Required corpus = (Desired Monthly Income × 12) ÷ 0.04. This assumes you'll withdraw 4% annually throughout retirement.
Lower expected returns
Bengen's study used historical averages of ~10% stock returns and ~5% bond returns. Today's environment features lower bond yields and potentially lower stock returns. Some analysts project 6-7% portfolio returns going forward, which would support only a 3-3.5% withdrawal rate.
Longer retirements
The 4% rule was designed for 30-year retirements. If you retire at 40 (FIRE movement) or 50, you need your money to last 40-50 years. Studies show 3-3.5% is safer for 50-year time horizons.
Sequence of returns risk
Retiring in 1966 or 2000 meant terrible early returns. Withdrawing 4% while your portfolio drops 40% in the first few years can permanently cripple a portfolio. This risk is highest in the first decade of retirement.
Inflation assumptions
The 4% rule assumes you'll increase withdrawals by inflation every year. But healthcare costs – a huge retirement expense – typically rise faster than CPI inflation. Your personal inflation rate may exceed the official numbers.
| Strategy | How It Works | Pros | Cons |
|---|---|---|---|
| 3% Rule | Withdraw 3% annually | Much safer for long retirements | Need 33% larger portfolio |
| Dynamic Spending | Adjust withdrawals based on market performance | Reduces sequence risk significantly | Income varies year to year |
| Bucket Strategy | Keep 2-3 years cash, rest invested | No forced selling in downturns | Cash drag on returns |
| Guardrails | Increase/decrease based on portfolio value | Balances income and safety | Complex to implement |
Is the 4% rule still valid in 2024?
It's a reasonable starting point, but not a guarantee. The original study's assumptions don't match today's low-yield environment. Many planners now use 3.5% as a more conservative baseline. If you have flexibility to reduce spending in bad market years, 4% is probably fine.
Does the 4% rule include Social Security?
No – the 4% rule applies to your investment portfolio. Social Security, pensions, and rental income are separate. If you'll get $2,000/month from Social Security, you can subtract that from your needed income and calculate a smaller required portfolio.
What if I retire early (FIRE)?
Early retirees face 50+ year time horizons, not 30 years. Most FIRE advocates use 3-3.5% withdrawal rates. The "4% rule" becomes the "3.25% rule" for 50-year retirements. Also consider that early retirees often have flexibility to work part-time if needed.
Should I adjust for taxes?
Absolutely. The 4% rule gives you pre-tax income. If you need $4,000/month after taxes and you're in a 20% tax bracket, you actually need $5,000/month pre-tax – which requires a $1.5 million portfolio, not $1.2 million. Roth accounts change this calculation.
What asset allocation works best with the 4% rule?
Bengen's original study used 50-75% stocks. Most subsequent research suggests 60% stocks / 40% bonds is a reasonable baseline. More stocks = higher returns but more volatility. Less stocks = smoother ride but potentially lower returns. Target-date funds typically handle this automatically.
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