If you've spent any time around retirement planning, you've run into some version of this claim: save 25 times your annual expenses, withdraw 4% of it each year, and your money should last indefinitely. Our retirement calculator uses this as its default assumption, so it's worth understanding where the number comes from and where it gets shaky.
Where "4%" comes from
The number traces back to a 1994 study by financial planner William Bengen, who tested historical U.S. market returns against decades of retirement withdrawals. He found that a retiree who withdrew 4% of their portfolio in year one, then adjusted that dollar amount for inflation every year after, would not have run out of money in any 30-year historical period he tested, even through the Great Depression and the stagflation of the 1970s.
"25x expenses" is just the same rule stated as a savings target instead of a withdrawal rate: if 4% of your portfolio should cover a year of expenses, your portfolio needs to be 25 times your annual expenses (since 1 ÷ 0.04 = 25).
What it actually assumes
The 4% rule isn't a law of finance, it's a backtest with specific, load-bearing assumptions:
- A 30-year retirement horizon. Retire at 40 and it's a much weaker guarantee; retire at 70 and it's conservative.
- A U.S.-heavy stock/bond portfolio, typically 50-75% equities. Different allocations produce different safe withdrawal rates.
- Fixed, inflation-adjusted withdrawals. Real retirees often flex their spending down in bad years, which the rule doesn't account for, and also doesn't punish you for not doing.
- U.S. historical returns, which were unusually good in the 20th century by global standards. Some researchers argue the "safe" rate for a more cautious, globally diversified assumption is closer to 3-3.5%.
Why it's still a useful starting point
Despite the caveats, 4% survives as a default because it's a single, memorable number that turns "how much do I need to retire" from an open-ended question into a multiplication problem. It gives you a target to plan around, even if you should treat it as a starting assumption rather than a guarantee.
Our retirement calculator lets you adjust the withdrawal rate, expected return, and time horizon directly, so you can see how sensitive your own number is to those assumptions rather than taking 4% on faith.