How much can you spend in retirement without going broke?

In 1994, financial adviser William Bengen ran a simple experiment: if a retiree had lived through every 30-year stretch in U.S. market history, how much could they have withdrawn each year without running out of money? His answer became the famous 4% rule — one of the most-cited rules of thumb in retirement planning.

The mechanics are precise and often misunderstood. You take 4% of your portfolio in the first year, then adjust that same dollar amount up for inflation every year after — you do not recompute 4% of the shrinking or growing balance. On a $1,000,000 portfolio, that's $40,000 in year one, then roughly $41,200 the next year if inflation runs 3%, regardless of what the market did. Flip it around and you get the handy 25x rule: to retire, aim for savings worth about 25 times your annual spending.

The rule works because a balanced mix of stocks and bonds has historically grown enough to outrun withdrawals across three decades — including through the Depression and 1970s inflation. But it's a historical rule of thumb, not a guarantee: it assumes a ~30-year retirement, ignores taxes and fees, and can strain if a market crash hits in your first few years (sequence-of-returns risk). Treat it as a starting benchmark, not a promise.