Your withdrawal rate
% withdrawn from portfolio each year
Dashed line: your initial withdrawal rate.
Understanding the 4% Rule
What is your target portfolio size?
per month
The amount your portfolio needs to cover. Use any currency throughout.
Enter a valid amount of zero or more.
2%4%6%
Annual expenses/withdrawal rate = target portfolio size
YOUR FI NUMBER
1,200,000
Target portfolio size to cover your living expenses
Per month4,000
Per year48,000
At 4%, that’s 25 × your annual expenses.
How the 4% rule really works
WORKED EXAMPLE
In Year 1, you can take out 40,000 from a 1 million portfolio. In Year 2, you take out 41,200, increasing the first year's withdrawal amount by inflation (3%).
In your first year
Enter a valid amount of zero or more.
Show amounts as
Initial portfolio size
Year one expenses
Your investment portfolio
Year by year
Future MoneyLiving expenses are removed first, then the remaining portfolio grows by the market growth rate. Then the next year's annual living expenses are increased by inflation.
| Retirement year | Annual living expenses | Withdrawal rate | Investment portfolio after withdrawal | Investment portfolio end of year |
|---|
How this illustration is calculated
Your starting portfolio is first-year expenses divided by the initial withdrawal rate. Expenses increase with inflation from year two. Each year, expenses are taken out first and market growth is applied to the remaining balance. Portfolio balances stop at zero.
Buying Power divides start-of-year amounts by inflation accumulated to that point, and end-of-year balances by inflation accumulated to the end of that year. Expenses are therefore constant in Buying Power.
This illustration assumes the same growth and inflation rates every year. It excludes fees, taxes and other income. It explains the mechanics; it does not establish a safe withdrawal rate or guarantee that a portfolio will last.