The 4% Rule: A 30-Year Backtest

The "4% rule" comes from a 1994 study by financial advisor William Bengen, who found that a retiree withdrawing 4% of their initial portfolio value in year one, then adjusting that dollar amount for inflation every year after, had historically not run out of money over a 30-year retirement — even across the worst historical starting points, such as retiring right before a major bear market.

Running a 60/40-style portfolio through this site's Withdrawal mode with a 4% starting rate illustrates why the rule has held up reasonably well historically: in most 30-year windows, portfolio growth during good years outpaces the fixed withdrawal amount by a wide enough margin that the portfolio not only survives but often grows in real terms. The rule is far more sensitive to the sequence of returns in the first five to ten years of retirement than to the average return over the full 30 years — a bad initial stretch of markets combined with fixed withdrawals can compound into a much worse outcome than the same average return spread evenly across the period.

It's worth stress-testing the rule against more than one historical starting point. A retiree who began withdrawing in a year immediately preceding a prolonged bear market experienced meaningfully worse outcomes than one who started during a bull market, even though both experienced similar average returns over their full 30-year horizon. This is exactly why this site's simulator lets you choose your own starting period and withdrawal rate rather than relying on a single average backtest — try comparing a 3% withdrawal rate against 4% and 5% across different 20- and 30-year windows to see how sensitive the outcome is.