Safe withdrawal rate

What It Means

A safe withdrawal rate is the percentage of a retirement portfolio you can take out in the first year, then raise each year for inflationInflationA general rise in the prices of goods and services over time, so the same amount of money buys less than it did before. See more, while keeping a high chance the money lasts through retirement. Researchers estimate it by testing many possible paths for markets and inflation over a set length of retirement, often 30 years. The best-known figure is 4%, and Morningstar's 2025 research put its base case at 3.9%.

How People Say It

• "We're planning on a 3.9% withdrawal rate."
• "The 4% rule says we need 25 times our spending."
• "If markets drop early, we'll take less that year."

The Breakdown

Formula

First-year withdrawal = portfolio × withdrawal rate. In each later year, the dollar amount rises with inflation, whatever the portfolio did.

Worked example. A couple retires with $1,000,000.

What the result means. Moving from 3.9% to 4% changes the first year by only $1,000, but the gap compounds over 30 years of inflation raises. Morningstar's 3.9% assumes a 90% chance of money remaining after 30 years, which still leaves about a 1 in 1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more chance it doesn't, so it's an estimate, never a promise. A longer retirement, such as one starting at 45, needs its own testing.

Where It Comes From

Financial plannerFinancial advisorA general job title for someone who helps with money and investment decisions; the title alone says nothing about their license, training or duty to you. See more Bill Bengen introduced the 4% rule of thumb in a 1994 study of past market returns, according to Morningstar. Morningstar publishes its own estimate each year in its retirement income research: 3.3% in 2021, 3.7% in the previous year's report, and 3.9% in its 2025 research.

Good to Know

Morningstar's figure changes from year to year with bond yields, stock valuations and inflation expectations, so check its latest State of Retirement Income report before relying on a number. Its research also finds that retirees willing to let spending rise and fall with markets can start near 6%. Taxes and fees come out of withdrawals, and money in a 401(k)401(k)A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit. See more or IRATraditional IRAAn individual retirement account where contributions may be tax-deductible, growth is tax-deferred, and withdrawals are taxed as income. See more follows its own IRS rules on when it can come out. A financial planner can test a plan against your actual accounts and retirement age.

Related Terms and Categories

• Financial independence

  Having enough savings, investments or other income to cover your living costs without needing a paycheck from a job.

• FIRE movement

  A personal finance approach, short for financial independence, retire early, built on saving a large share of income so that work becomes optional early.

• Coast FIRE

  A FIRE style where you save enough early that, left to grow, your investments could reach a retirement goal later without large new contributions.

• Inflation

  A general rise in the prices of goods and services over time, so the same amount of money buys less than it did before.

Saving and investing basics