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A basic question about the 4% rule


Hi, I’ll keep this brief.

Does the 4% rule aim to leave you with $0 at the end of the X-year period you are calculating, or with the original principle, or something else entirely?

I’ve read multiple sites but I just can’t seem to find this explained.

I’m looking to retire at age 40, but I’d like to live only from gains/interest of my investment, and essentially leave my original investment (adjusted for inflation) alone so it can be passed to my kids.

Does the 4% rule still apply? Or how do I adjust the calculations to take this into account?

Thank you.


Someone answered:

No, not necessarily -0-

95% of the time you will end with a positive number after 30 years

The best tool in my opinion to illustrate possible outcomes & play with the numbers is

Someone answered:

There's a lot of information out there about the original study, the updates to the study, and what it all means.

The 4% doesn't aim to do anything specifically. The original study is saying that it's safe to withdraw 4% every year and that after 30 years you will not run out of money. This doesn't mean that you'll be at $0.00 (though you could be). It doesn't mean that you'll be at your starting balance (though you could be). It's saying that given historical returns and models, you won't be negative if you stick to a 4% withdrawal over 30 years.

Now updates to the study / model say that 4% is actually conservative, and that "the rule" can essentially apply to infinite timeframes. From Bill Begen's AMA: "If you plan to live forever, 4% should do it." (And yet others will disagree and suggest 3.5% might be safer.)

You can also use the FireCALC link on the sidebar and play with some numbers which will back-test. So for example, if I put in $80k spending and $2M start, over 30 years, it says 6 starting years out of the possible 118 starting years you would "fail" the test and end up in the negatives. 94.9% success rate. If you picked the absolutely worst year in history to retire, and stuck to the 4% rule, you'd end up with -$800,000. But if you picked the best year, you'd end up with $11,359,000 after 30 years. If you look at the chart, the majority of the lines look like you'd end up with more than your $2M start. (Average end is $3.7M)

If I change it from 30 years to 50 years, it now fails 20 times out of 98 scenarios, or 79.6% success rate.

Someone answered: