Glossary
What is the 4% rule?
The 4% rule is a guideline suggesting a retiree can withdraw 4% of their portfolio in the first year of retirement, then adjust that amount for inflation annually, with a low chance of running out over 30 years. It came from historical research, not from any individual's plan.
It was a genuinely useful research finding and it remains a reasonable starting sanity check. It is not a plan.
The rule assumes a fixed allocation, fixed spending that only moves with inflation, and a 30-year horizon. Real retirements are not like that. Spending is usually higher early, lower in the middle, and higher again late. Tax situations change. People retire at different ages and live different lengths of time.
Most importantly, the rule says nothing about which years the bad returns land in. Two retirees following it exactly can have completely different outcomes based on when they happened to retire.
What the rule assumes versus what actually happens
| The assumption | Reality | |
|---|---|---|
| Spending | Fixed, inflation-adjusted | Higher early, then lower, then higher |
| Horizon | Exactly 30 years | Unknown — and different for each spouse |
| Portfolio | One fixed allocation | Should change as the horizon shortens |
| Other income | Not considered | Social Security, pension, rental income |
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