Planning guide
What changes when you choose 3%, 3.5% or 4%?
A lower withdrawal rate raises the portfolio target. Here is the size of that trade-off, before making any claim about future safety.
Start with the same 40,000 annual budget
| Initial rate | Required portfolio | More than the 4% target |
|---|---|---|
| 4% | 1,000,000 | — |
| 3.5% | 1,142,857 | 142,857 (+14.3%) |
| 3% | 1,333,333 | 333,333 (+33.3%) |
Every row uses annual spending ÷ rate. The percentage increase in assets is larger than the percentage-point change in the rate because you are dividing by a smaller number.
Try the comparison with your own spending →A withdrawal rate is not the investment return
Under a fixed-real withdrawal strategy, a 1,000,000 starting portfolio with a 4% rate pays 40,000 in year one. At 3% inflation, the next year’s planned withdrawal becomes 41,200. It is not recalculated as 4% of whatever the portfolio is worth then.
If the portfolio falls to 800,000, taking 4% of the current balance instead would pay 32,000. That is a different policy: spending absorbs market losses. Be clear which policy you are testing.
What this comparison cannot decide
The table does not identify a safe rate for you. Retirement length, asset mix, taxes, fees and how much you can reduce spending affect the decision. A lower starting rate leaves more initial assets for the same budget, but it cannot eliminate investment risk.
Test the withdrawals against historical US stock returns. This is a 100% stock test, so its results must not be described as those of a balanced stock-and-bond portfolio.
Source and method
Background: William P. Bengen, Determining Withdrawal Rates Using Historical Data (1994). The tables here are FourPercent’s arithmetic examples, not success-rate estimates from that study. Calculation conventions and limitations.
Check the assumptions behind your FIRE plan
How much do the horizon and portfolio mix change a withdrawal test? See our original 30-, 40- and 50-year comparison, including every historical window and a worked pension bridge. Then test pension, fees and life events in the complete planner.