How Much Can I Safely Spend? Rules of Thumb

The story: Grace finds a rule of thumb

Grace reads about the 4% rule, and Walt points out that it is a starting point people adjust, not a promise.

1. Grace: I read about the “4% rule.” Spend 4% of my savings the first year, then raise it for inflation. Is that safe?
2. Narrator: The rule came from 1990s research. With that method, money lasted through the worst past periods the researcher tested.
3. Walt: That research assumed about 30 years, a fixed investment mix, and no fees or taxes.
4. Narrator: Real people adjust. They spend less after a bad year, and they have pensions and Social Security too.
5. Grace: So it’s where I start, not a promise. My own number depends on my age, my income and how flexible I can be.

What you’ll learn

1. What the rule says

   The 4% rule comes from 1990s research. You spend a share of your savings in year one, then raise that dollar amount with inflation each year. In the past periods tested, the money lasted at least 30 years.

   Example: $500,000 saved × 4% = $20,000 in year one. If prices rise 3%, year two is $20,600.

2. What it assumed

   The research assumed about 30 years of retirement and a fixed mix of stocks and bonds, and it ignored fees and taxes. Researchers update the number as markets and studies change.

3. Why it’s only a start

   The rule is rigid: it never changes spending after a bad year. Real people trim and raise. People who can cut back a little in bad years can often start a bit higher.

4. Your own factors

   A longer retirement points to a lower start. A big guaranteed income floor covers essentials, so savings carry less weight. Flexible spending gives more room. A rule of thumb is a rough guide, not a plan for you.

Key words

withdrawal rate

yearly spending from savings as a share of savings

safe withdrawal rate

a research-based starting point, not a promise

Common questions

Is 4% still the right number?

Researchers keep updating it as markets change, and their answers differ. Treat any single number as a rough guide, not a recommendation.

Does the rule include Social Security?

No. It’s about savings only. Social Security, pensions and annuities come on top and change how much your savings need to do.

Remember this

A rule of thumb is where you start, not where you stop.

Try it: Check your withdrawal rate

1. Add up what you plan to take from savings next year.
2. Divide it by your total savings to get your withdrawal rate.
3. Compare it with your age, guaranteed income and how flexible you can be. Try it in the public retirement calculator too.

No account: use the public Retirement Calculator (/tools/retirement-calculator).