The 4% rule: Bengen's original research
Financial planner William Bengen published "Determining Withdrawal Rates Using Historical Data" in the Journal of Financial Planning in 1994, examining historical U.S. stock and bond returns to determine what percentage of a retirement portfolio could be withdrawn annually, adjusted for inflation each year, without running out of money over a 30-year retirement. Bengen found that, across the worst historical starting periods in his dataset, including retirements beginning shortly before major market downturns, an initial withdrawal rate of approximately 4% to 4.5% of the portfolio's starting value -- followed by inflation-adjusted withdrawals of that same dollar amount in subsequent years -- did not exhaust the portfolio within 30 years.
Bengen's analysis assumed a portfolio allocation of 50% to 75% U.S. stocks and the remainder in intermediate-term U.S. government bonds, and modeled historical returns rather than projecting future returns. In a 1996 follow-up paper, "Asset Allocation for a Lifetime," also published in the Journal of Financial Planning, Bengen further examined how different stock and bond allocations affected the sustainability of withdrawal rates across historical retirement start dates.
The Trinity Study: an independent confirmation
In 1998, finance professors Philip Cooley, Carl Hubbard and Daniel Walz, then at Trinity University in Texas, published "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable" in the AAII Journal, examining similar questions using historical returns from 1926 onward across a range of stock and bond allocations and withdrawal rates. Their analysis -- which became known informally as the Trinity Study -- reported that a 4% initial withdrawal rate, adjusted annually for inflation, had a historical success rate, meaning portfolio survival over a 30-year period, of close to 95% or higher across most of the stock and bond allocations they tested, using the historical U.S. market data available at the time.
The Trinity Study is frequently cited alongside Bengen's research because it approached the same underlying question -- what withdrawal rate has historically been sustainable -- using an independent methodology and a broader set of portfolio allocations. Both bodies of research are grounded in historical U.S. market returns from the 20th century, meaning their conclusions describe what worked in that specific historical dataset rather than a guaranteed outcome for any future retirement.
The 25x heuristic: converting the withdrawal rate to a savings target
The 25x heuristic states that a retirement portfolio of approximately 25 times one year of planned annual expenses supports an initial 4% withdrawal rate, because 1 divided by 0.04 equals exactly 25. For example, a retiree planning to withdraw $40,000 in the first year of retirement would, under this heuristic, target a starting portfolio of approximately $40,000 x 25 = $1,000,000. The heuristic is a direct mathematical restatement of the 4% rule rather than a separately derived finding, and it is commonly used in retirement planning discussions because it translates a withdrawal percentage into a concrete savings target.
The table below shows the portfolio size implied by the 25x heuristic for a range of annual expense levels, alongside the equivalent initial withdrawal rate of 4% used to derive each figure.
| Annual expenses | 25x portfolio target (4% withdrawal rate) |
|---|---|
| $30,000 | $750,000 |
| $40,000 | $1,000,000 |
| $60,000 | $1,500,000 |
| $80,000 | $2,000,000 |
| $100,000 | $2,500,000 |
Sequence-of-returns risk
Sequence-of-returns risk describes the risk that the specific order in which investment returns occur -- not just their long-run average -- affects how long a portfolio lasts once withdrawals begin. A retiree who experiences poor market returns in the first several years of retirement, while simultaneously withdrawing funds, can deplete a portfolio significantly faster than a retiree who experiences the same average return but in a more favorable order, because early losses combined with ongoing withdrawals leave less capital remaining to benefit from any later market recovery.
Pfau and Kitces (2014), in "Reducing Retirement Risk with a Rising Equity Glide-Path," published in the Journal of Financial Planning, examined strategies -- including adjusting a portfolio's stock allocation over the course of retirement -- intended to reduce the impact of unfavorable early-retirement return sequences. Sequence-of-returns risk is a central reason why the 4% rule and the Trinity Study results are described as historical success rates rather than guarantees: they reflect how a fixed withdrawal strategy would have performed against the specific sequences of returns that occurred historically, including some of the worst sequences on record.
Criticisms and limitations of the 4% rule
Finke, Pfau and Blanchett (2013) published "The 4 Percent Rule Is Not Safe in a Low-Yield World" in the Journal of Financial Planning, arguing that the historical bond returns underlying Bengen's original analysis and the Trinity Study were higher, on average, than yields available in the period the paper examined, and that lower starting bond yields could reduce the historical success rate of a 4% withdrawal rate for retirements beginning in a low-yield environment. This research illustrates a broader critique: withdrawal-rate research based on historical data reflects the specific returns, inflation and market conditions of the periods studied, and future market conditions -- including interest rates, valuations and inflation -- may differ from that historical record.
Additional limitations commonly raised in the retirement planning literature include: the original studies used a fixed 30-year retirement horizon, which may be too short for people retiring earlier or too long for people retiring later; the studies assumed a static asset allocation strategy rather than dynamic spending approaches that adjust withdrawals based on portfolio performance; and the studies did not account for fees, taxes, or the effect of Social Security or pension income being layered on top of portfolio withdrawals in a typical retirement plan.
Using these frameworks as starting points
The 4% rule, the Trinity Study and the 25x heuristic are widely used as a starting point for estimating a retirement savings target, not as guaranteed formulas. Each provides an order-of-magnitude estimate based on historical U.S. market data covering a specific and limited set of historical periods, and each depends heavily on assumptions about asset allocation, time horizon and the definition of 'success', typically a portfolio balance at or above zero at the end of the modeled period.
Retirement planning research since these original studies has proposed alternative approaches, including variable withdrawal strategies that adjust spending based on portfolio performance and guardrail approaches that increase or decrease withdrawals when a portfolio grows faster or slower than expected. These dynamic approaches are generally intended to address some of the rigidity of a fixed 4% initial withdrawal rate, though they introduce their own complexity and require the retiree to be willing to adjust spending in response to market conditions.
Preguntas frecuentes
What is the 4% rule for retirement?
The 4% rule, based on William Bengen's 1994 research published in the Journal of Financial Planning, suggests withdrawing 4% of a retirement portfolio's value in the first year of retirement, then adjusting that dollar amount for inflation in each subsequent year. Bengen's historical analysis found this approach did not exhaust a portfolio within 30 years across most historical U.S. market starting points he examined, including some of the worst historical periods for retirees. It is a historical approximation, not a guarantee for any specific future retirement.
What is the Trinity Study?
The Trinity Study refers to a 1998 paper, "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable," by finance professors Philip Cooley, Carl Hubbard and Daniel Walz of Trinity University, published in the AAII Journal. It independently examined historical U.S. market data from 1926 onward and found that a 4% initial withdrawal rate, adjusted annually for inflation, had a historical success rate of close to 95% or higher over 30-year periods across most of the portfolio allocations tested, broadly supporting Bengen's earlier findings.
What does the 25x rule mean for retirement savings?
The 25x rule states that a retirement portfolio worth approximately 25 times one year of planned annual expenses supports an initial 4% withdrawal rate, since 1 divided by 0.04 equals 25. For example, someone planning to spend $50,000 in the first year of retirement would target a portfolio of approximately $1,250,000 under this heuristic. It is a direct mathematical restatement of the 4% withdrawal rate rather than an independently derived figure.
What is sequence-of-returns risk?
Sequence-of-returns risk is the risk that the specific order of investment returns, not just their long-term average, affects how long a portfolio lasts once regular withdrawals begin. A retiree who experiences poor returns in the early years of retirement -- while also withdrawing funds -- can deplete a portfolio faster than someone who experiences the same average return in a more favorable order, because early losses combined with withdrawals leave less capital to benefit from any later recovery. It is a key reason withdrawal-rate research is described in terms of historical success rates rather than guarantees.
Is the 4% rule still considered reliable?
The 4% rule remains a widely used reference point, but it has been the subject of ongoing debate. Finke, Pfau and Blanchett (2013), published in the Journal of Financial Planning, argued that lower bond yields than those seen in Bengen's original historical dataset could reduce the historical success rate of a 4% withdrawal in some future retirement periods. Later research has proposed dynamic, variable withdrawal strategies as alternatives to a fixed 4% rate. Most retirement planning discussions now treat the 4% rule and the 25x heuristic as a starting estimate to be adjusted for individual circumstances rather than a fixed target.
Referencias
- Bengen WP. "Determining Withdrawal Rates Using Historical Data." Journal of Financial Planning, 1994;7(4):171-180.
- Bengen WP. "Asset Allocation for a Lifetime." Journal of Financial Planning, 1996;9(4):58-67.
- Cooley PL, Hubbard CM, Walz DT. "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable." AAII Journal, 1998;10(3):16-21.
- Finke MS, Pfau WD, Blanchett D. "The 4 Percent Rule Is Not Safe in a Low-Yield World." Journal of Financial Planning, 2013;26(6):46-55.
- Pfau WD, Kitces ME. "Reducing Retirement Risk with a Rising Equity Glide-Path." Journal of Financial Planning, 2014;27(1):38-45.