Four Percent Rule Calculator

Four Percent Rule Formula:

\[ Safe Withdrawal Rate = Initial Portfolio \times 0.04 \]

Safe Withdrawal Rate:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Four Percent Rule?

The Four Percent Rule is a retirement planning guideline that suggests retirees can safely withdraw 4% of their initial retirement portfolio each year, adjusted for inflation, without running out of money for at least 30 years.

2. How Does the Calculator Work?

The calculator uses the Four Percent Rule formula:

\[ Safe Withdrawal Rate = Initial Portfolio \times 0.04 \]

Where:

\( Initial Portfolio \) — Total retirement savings in currency units
\( 0.04 \) — The four percent withdrawal rate (unitless)
\( Safe Withdrawal Rate \) — Annual withdrawal amount adjusted for inflation

Explanation: This rule projects sustainable retirement spending by calculating an initial withdrawal amount that can be adjusted annually for inflation while maintaining portfolio longevity.

3. Importance of Safe Withdrawal Rate Calculation

Details: Calculating a safe withdrawal rate is crucial for retirement planning to ensure that retirees don't outlive their savings while maintaining their desired standard of living throughout retirement.

4. Using the Calculator

Tips: Enter your total retirement portfolio value in USD. The calculator will compute your safe annual withdrawal amount based on the four percent rule.

5. Frequently Asked Questions (FAQ)

Q1: Why is the four percent rule commonly used?
A: The four percent rule is based on historical market data showing that this withdrawal rate has a high probability of sustaining a portfolio for 30 years across various market conditions.

Q2: Should the withdrawal amount be adjusted for inflation?
A: Yes, the initial withdrawal amount should be adjusted annually for inflation to maintain purchasing power throughout retirement.

Q3: Does this rule work for all portfolio types?
A: The rule was originally based on a balanced portfolio of stocks and bonds. Different asset allocations may require adjustment to the withdrawal rate.

Q4: What are the limitations of the four percent rule?
A: The rule may not account for sequence of returns risk, changing market conditions, longer retirement periods, or individual spending patterns.

Q5: Is the four percent rule guaranteed to work?
A: No, it's a guideline based on historical data. Actual results may vary, and retirees should monitor their portfolio and adjust spending as needed.