Does the 4% rule work? Tested against every year since 1871
Short answer: Withdrawing 4% of the starting portfolio, then the same inflation-adjusted amount each year, lasted 30 years in 96% of US start years from 1871 on (119 of 124), with either 100% stocks or 60/40. Over 40 years it lasted 94% of the time with all stocks and 89% with 60/40; over 50 years, 90% and 75%.
The 4% rule says you can spend 4% of your portfolio in the first year of retirement, then raise that dollar amount with inflation each year, and expect the money to last about 30 years. We tested it the way the original research did, but with more history: every US start year since 1871, in real dollars, with no fees or taxes.
Share of start years the money lasted
| Withdrawal rate | 30 years, 100% stocks | 30 years, 60/40 | 40 years, 100% stocks | 40 years, 60/40 | 50 years, 100% stocks | 50 years, 60/40 |
|---|---|---|---|---|---|---|
| 3.0% | 100% | 100% | 100% | 100% | 100% | 100% |
| 3.5% | 100% | 100% | 100% | 98% | 98% | 94% |
| 4.0% | 96% | 96% | 94% | 89% | 90% | 75% |
| 4.5% | 91% | 86% | 80% | 70% | 75% | 57% |
| 5.0% | 81% | 74% | 71% | 53% | 67% | 40% |
Start years tested: 124 for 30 years, 114 for 40 and 104 for 50. 60/40 is 60% US stocks and 40% US bonds, rebalanced yearly.
What this means
- For a traditional 30-year retirement, 4% held up in all but a handful of start years; the failures cluster around retirements that began just before long stretches of high inflation and poor real returns, such as the late 1960s.
- Early retirees need a lower rate. Over 50 years, 3.5% lasted in 98% of start years with all stocks; 4% dropped to 90%, and 75% with 60/40.
- Bonds did not make long retirements safer. Over 40 and 50 years, the 60/40 portfolio failed more often than all stocks at every rate above 3%.
- A little flexibility goes a long way. Part-time income in the early years, or spending less after bad years, raises these numbers sharply. See fun jobs and variable withdrawals.
Run your own numbers, with your spending, housing, Social Security and health insurance, in the Workspace.
Questions
Does the 4% rule still work?
In US history since 1871 it lasted 30 years in 96% of start years. For 40 to 50 year early retirements it lasted 75% to 94% of the time depending on the stock and bond mix, so many early retirees plan on 3.25% to 3.5% or stay flexible.
What withdrawal rate never failed historically?
3% lasted 30, 40 and 50 years in every US start year since 1871, with all stocks or 60/40. 3.5% never failed over 30 years and failed in only 2% of 50-year periods with all stocks.
Is 100% stocks or 60/40 safer in retirement?
Over 30 years they were about equal at 4%. Over 40 and 50 years, all stocks lasted more often at every withdrawal rate above 3%, though with deeper drops along the way.