Quick answer
What is the 4% rule?
The 4% rule says you can withdraw 4% of your portfolio in the first year of retirement, then raise that dollar amount by inflation each year, with little risk of running out of money over 30 years. It comes from William Bengen's 1994 study of US stock and bond returns, and implies you need about 25 times your annual spending saved.
Key takeaways
- 01Withdraw 4% in year one, then adjust that dollar amount for inflation.
- 02It implies saving about 25× your annual spending.
- 03Morningstar puts the 2026 safe starting rate at 3.9% (90% success over 30 years).
- 04It assumes a diversified stock and bond mix, not one stock.
| Origin | William Bengen, 1994 |
|---|---|
| Horizon tested | 30 years |
| Portfolio | 50–75% stocks, rest bonds |
| Savings implied | 25× annual spending |
| Morningstar 2026 | 3.9% starting rate |
| Bengen's later view | About 4.7% with more asset classes |
The Short Answer
What is the 4% rule?
The 4% rule says you can withdraw 4% of your portfolio in the first year of retirement, then raise that dollar amount by inflation each year, with little risk of running out of money over 30 years. It comes from William Bengen's 1994 study of US stock and bond returns, and implies you need about 25 times your annual spending saved.
It is a rule of thumb, not a guarantee. Morningstar's latest research puts the safe starting rate at 3.9% for 2026, and the rule assumes a diversified portfolio of roughly 50–75% stocks. A portfolio dominated by one stock has far wider outcomes than the history the rule is built on.
Origins
Where did the 4% rule come from?
In October 1994 financial planner William Bengen published Determining Withdrawal Rates Using Historical Data in the Journal of Financial Planning. Using US returns back to 1926, he tested how much a retiree with a stock and bond portfolio could withdraw each year, adjusted for inflation, without running out within 30 years. The worst historical starting year still survived at a little over 4%, a figure he called SAFEMAX.
In 1998, three Trinity University professors (Cooley, Hubbard and Walz) ran a similar test across many portfolio mixes and horizons. Their paper popularized the idea of a "success rate" and became known as the Trinity study.
The Math
How much do you need to retire with the 4% rule?
Divide annual spending by the withdrawal rate. At 4% that is 25 times spending; at a more conservative 3.5% it is about 28.6 times.
Calculator
Withdrawal-rate calculator
Enter the yearly spending your portfolio must cover and a starting withdrawal rate.
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Year-one withdrawal from current portfolio
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Implied multiple of spending
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Savings needed for $100,000 a year of portfolio spending
2026 Numbers
Is the 4% rule still safe in 2026?
Morningstar's annual study, which uses forward-looking return assumptions rather than only history, puts the highest safe starting withdrawal rate at 3.9% for 2026, assuming a 90% chance of the money lasting 30 years with fixed inflation-adjusted spending. Flexible approaches, such as cutting spending after bad years, allow higher starting rates.
Bengen himself has argued for higher numbers, around 4.7%, using a broader mix of asset classes. The spread between these figures is the point: the safe rate depends on valuations, bond yields, inflation, fees and how flexible your spending is.
| Study | Safe starting rate | Key assumption |
|---|---|---|
| Bengen (1994) | About 4.1% | US stocks and intermediate Treasuries, 30 years, worst historical start |
| Trinity study (1998) | 4% high success for 50/50+ stock mixes | US stocks and long-term corporate bonds, 15–30 years |
| Morningstar (2026) | 3.9% | Forward-looking returns, 90% success, 30 years |
| Bengen (updated) | About 4.7% | More asset classes, including small caps |
Where Embark fits
The 4% rule assumes a diversified portfolio. What does a concentrated position pay you instead?
Run your ticker to see what it could target in income without selling first.
- Starts with the stock you own: no taxable sale to build a 4%-rule portfolio
- §721 in-kind contribution: $0 tax at contribution
- Targets 10%+ annual income, compared with a 3.9%–4% safe withdrawal rate
Run the numbers
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Limits
What are the weaknesses of the 4% rule?
Sequence of returns
Losses in the first years do far more damage than the same losses later. See sequence of returns risk.
Fees and taxes
The studies ignore fees and taxes. A 1% fee is a quarter of a 4% withdrawal.
Rigid spending
Real retirees cut back after bad years, which helps, and spend unevenly, which can hurt.
Concentration
The research used diversified indexes. A single stock can fall 70% and never recover, which the rule never tested.
"The 4% rule describes a diversified portfolio. If most of your wealth is one stock, the first question is concentration, not withdrawal rate."
Embark
What if your portfolio is one stock?
Selling a concentrated position to build a 4%-rule portfolio can cost 20–37% of the gain in tax. Embark accepts the shares in kind under §721 with $0 tax at contribution and targets 10%+ annual income from the position. That is a target, not a guarantee; shares have a 3-year lock-up, and Embark is for accredited investors. See how to live off a stock portfolio.
FAQ
Frequently asked questions
What is the 4% rule in simple terms?
Withdraw 4% of your savings in the first year of retirement, then increase that dollar amount by inflation each year.
Who created the 4% rule?
Financial planner William Bengen, in a 1994 Journal of Financial Planning article.
How much do I need to retire with the 4% rule?
About 25 times the annual spending your portfolio must cover.
Is the 4% rule still valid in 2026?
It is a reasonable starting point. Morningstar's 2026 research puts the safe starting rate at 3.9% for a 30-year retirement.
Does the 4% rule work for early retirement?
It was tested over 30 years. Longer retirements generally call for a lower starting rate or flexible spending.
Does the 4% rule include taxes?
No. Withdrawals are pre-tax, and fees reduce what you can safely take.
Sources
Primary sources
Sources
- Bengen, W. (1994), Determining Withdrawal Rates Using Historical Data, Journal of Financial Planning (FPA reprint)
- Cooley, Hubbard and Walz (1998), Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable, AAII Journal
- Morningstar: What's a safe retirement withdrawal rate for 2026?
- 26 U.S. Code §721: Nonrecognition of gain or loss on contribution to a partnership
Cite this article
Embark Funds Research. “The 4% Rule Explained Origins, Limits and 2026 Numbers.” Embark Funds, updated October 29, 2026. https://www.embarkfunds.com/insights/the-4-percent-rule-explained
Not tax, legal or investment advice: This article is educational and is not tax, legal, investment or Medicare advice. Rules and dollar amounts change every year and depend on your facts. Work with a CPA or financial planner before acting. Embark income figures are targets, not guarantees. Contributed shares have a 3-year lock-up, and Embark is open to accredited investors only.
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Contribute appreciated stock to Embark's SPV with $0 tax at contribution and target 10%+ annual income. 3-year lock-up; accredited investors.