Four Percent Rule Calculator

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Expert Review: This financial calculation module has been reviewed and verified for accuracy by David Chen, CFA. The underlying formula is based on the Trinity Study, which established the empirical basis for the 4% Rule.

Determine your required retirement nest egg, safe annual withdrawal amount, or effective withdrawal rate using the industry-standard “Four Percent Rule” methodology. Simply enter any two variables to solve for the third.

Four Percent Rule Calculator

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Your Calculated Result

Detailed Calculation Steps:

Four Percent Rule Calculator Formula

The 4% Rule is based on a simple relationship between your desired income, your investment portfolio, and the safe withdrawal rate.

Required Portfolio Size = Annual Income / (Withdrawal Rate / 100)

$$RPS = \frac{DAI}{\frac{WR}{100}}$$ Formula Source: Investopedia, Fidelity (High-Authority Financial Sites)

Variables Explained

  • Desired Annual Income (DAI): The fixed amount, in today’s dollars, you wish to withdraw from your portfolio in the first year of retirement.
  • Annual Withdrawal Rate (WR): The percentage of the portfolio’s starting balance that you plan to withdraw in the first year. The standard is 4%.
  • Target Retirement Portfolio Size (RPS): The total amount of money you need in your investment accounts to safely fund your retirement at the specified withdrawal rate.

What is the Four Percent Rule?

The Four Percent Rule is a guideline used by financial planners to determine a safe amount of money to withdraw from a retirement portfolio each year. The rule suggests that if you withdraw 4% of your starting portfolio balance in the first year of retirement, and then adjust that dollar amount for inflation in subsequent years, your money has a high probability (historically over 90%) of lasting for at least 30 years.

This rule is primarily based on a landmark 1998 study by three financial professors at Trinity University (often called the Trinity Study). They examined historical stock and bond returns and found that a 4% withdrawal rate was highly sustainable across various market conditions over a 30-year period. It is an essential starting point for calculating your Financial Independence (FI) number.

How to Calculate the Four Percent Rule (Example)

Let’s calculate the required portfolio size for an annual income of $50,000 using the standard 4% rate.

  1. Identify Target Income (DAI): The desired annual income is $50,000.
  2. Identify Withdrawal Rate (WR): The standard withdrawal rate is 4%. Convert this to a decimal: $4 / 100 = 0.04$.
  3. Apply the Formula: Divide the annual income by the decimal withdrawal rate. $RPS = \$50,000 / 0.04$.
  4. Determine Result: The required portfolio size is $1,250,000. This is your “FI Number.”

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Frequently Asked Questions (FAQ)

  • Is the 4% Rule still safe in today’s market?
    While the 4% Rule provides a high probability of success, some modern financial planners suggest a more conservative rate of 3.5% or 3.7% due to lower interest rates and market volatility.
  • Does the rule account for inflation?
    Yes, the rule explicitly requires the dollar amount withdrawn in subsequent years to be adjusted upwards to account for inflation, ensuring the retiree maintains their purchasing power.
  • Does the 4% Rule include Social Security?
    The 4% Rule typically calculates the nest egg needed to cover the *gap* between your total desired annual spending and other fixed income sources like Social Security or pensions.
  • What is the “Fire” number?
    The “FIRE” (Financial Independence, Retire Early) number is the portfolio size calculated by the 4% rule. It is 25 times your desired annual expenses.
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