The 4% rule is a retirement withdrawal guideline stating that retirees can withdraw 4% of their portfolio in the first year of retirement, adjusting that dollar amount upward for inflation each year, and have a high probability of not outliving their money over a 30-year retirement.
Discuss Your Withdrawal Strategy with SassonThe 4% rule (also called the Bengen rule or the 4% withdrawal guideline) states that a retiree can withdraw 4% of their investment portfolio in the first year of retirement, then increase that dollar amount each subsequent year by the rate of inflation, and have approximately a 90–95% probability of not running out of money over a 30-year retirement. It was developed by financial representative William Bengen in 1994 using historical U.S. stock and bond return data from 1926–1976.
The rule translates your retirement income need into a required portfolio size, and gives you a simple spending framework for sustaining that income throughout retirement.
Example: You need $60,000 per year from your portfolio to cover expenses (after Social Security and any pension income).
Each year, you take out the same inflation-adjusted dollar amount regardless of what the market has done. This is what makes the rule simple, but also what creates exposure to sequence of returns risk in down markets.
William Bengen analyzed every 30-year retirement period in U.S. history from 1926 through the 1970s. He found that a retiree who started with 4% and increased withdrawals with inflation never ran out of money in any historical 30-year window, even those beginning in the worst years (1929, 1937, 1966).
The 4% rule provides a concrete bridge between your savings balance and your retirement lifestyle, giving you a target to save toward and a framework to spend from.
The rule gives you a concrete savings target. If you want $80,000/year from your portfolio, you need $2 million ($80,000 ÷ 0.04). If you need $50,000/year, you need $1.25 million. This "25x rule" (saving 25 times your annual spending) is simply the 4% rule inverted, and it is one of the most widely used retirement savings benchmarks.
Without a withdrawal rate guideline, retirees risk either spending too aggressively (and running out of money) or spending too conservatively (and unnecessarily limiting their lifestyle). The 4% rule provides a middle path, historically high probability of lasting 30 years while allowing for inflation-adjusted spending.
The 4% rule applies only to your invested portfolio. Social Security income reduces the gap your portfolio must fill. Delaying Social Security from age 62 to 70 can increase your benefit by 76%, a larger guaranteed income stream that reduces portfolio withdrawal pressure and makes your 4% rule portfolio need significantly smaller.
The 4% rule's biggest vulnerability is poor market returns in the first 5–10 years of retirement, a phenomenon called sequence of returns risk. A major market decline early in retirement (combined with ongoing withdrawals) can permanently impair a portfolio even if long-term average returns are identical to a luckier retiree. Managing this risk is as important as choosing the right withdrawal rate.
Nevada's 0% state income tax creates a meaningful real-world advantage for retirees applying the 4% rule. Most retirement portfolio withdrawals (from traditional IRAs, 401(k)s, brokerage accounts) are subject to state income tax in most states, but not in Nevada.
This means Nevada retirees can either:
For retirees who moved from California to Nevada, the 4% rule's real purchasing power is materially higher in Nevada, even if the nominal withdrawal amount is identical.
The 4% rule is based on historical data, not a guarantee. It has worked in all 30-year historical periods studied, but future returns may differ from history. It is a well-supported starting point, not a promise of portfolio survival.
The 4% rule applies only to your investable portfolio, not your total income. Social Security, pensions, rental income, and annuity payments are separate. They reduce the income gap your portfolio must fill, which reduces how much you need to have saved.
The rule calls for inflation-adjusting the dollar amount withdrawn, not recalculating 4% of the current portfolio each year. Recalculating annually (a different approach called "percentage of portfolio") reduces the risk of running out of money but creates variable income, which can be harder to budget around.
The original 4% rule research did not fully account for income taxes on withdrawals. For retirees drawing from traditional IRAs or 401(k)s, the withdrawal must be grossed up to account for taxes. Nevada retirees have a built-in advantage here, no state income tax means less grossing-up is needed to reach a target after-tax income.
The 4% rule remains a widely used starting point, but many financial researchers have updated their thinking given today's environment. The original Bengen study (1994) used historical U.S. stock and bond returns from 1926–1992. In periods of lower expected bond returns, some researchers suggest a more conservative 3.0%–3.5% withdrawal rate for 30-year retirements.
Others argue the 4% rule is still reasonable for diversified portfolios with meaningful equity allocations. The most important insight is to treat the 4% figure as a planning guideline, not a fixed law, and to build flexibility into your withdrawal strategy, particularly in early retirement years when sequence of returns risk is highest.
No, the original 4% rule applies only to your invested portfolio (stocks and bonds). Social Security income is separate and should be subtracted from your total income need before calculating your portfolio withdrawal. For example, if you need $80,000 per year and Social Security provides $30,000, you need only $50,000 from your portfolio.
Using the 4% rule, that $50,000 withdrawal requires a $1.25 million portfolio, not a $2 million portfolio based on the full $80,000 need. This is why delaying Social Security to maximize that benefit can significantly reduce the portfolio size needed to sustain your retirement.
Whether to use a lower rate depends on your retirement horizon, risk tolerance, and flexibility. For retirements longer than 30 years (retiring at 55–60), some planners recommend 3.0%–3.5%. For those with significant guaranteed income (pension, Social Security, annuity), a higher initial withdrawal from the portfolio may be acceptable because the guaranteed floor reduces longevity risk.
The most robust approaches use dynamic withdrawal strategies, spending slightly less in down years and slightly more in good years, rather than rigidly applying a fixed percentage. A flat 4% is simpler, but flexible withdrawal rules tend to produce better outcomes while preserving more wealth.
Nevada's 0% state income tax means that for every dollar you withdraw under the 4% rule, more after-tax income remains in your pocket compared to retirees in California, Oregon, or New York. A Nevada retiree withdrawing $40,000 from a traditional IRA pays only federal income tax on that amount. A California retiree withdrawing the same $40,000 pays federal tax plus up to 9.3% California state income tax, effectively reducing the real purchasing power of each dollar withdrawn.
This means Nevada retirees can either sustain the same lifestyle on a smaller portfolio, or achieve a materially higher standard of living on the same portfolio, compared to high-tax-state retirees using the same nominal 4% rule. Over a 30-year retirement, this tax advantage compounds significantly.
Use these steps to apply—or intelligently adapt—the 4% rule to your retirement income plan.
The 4% rule is a starting point, not a complete retirement income plan. Sasson Emambakhsh (NV #4185790 | AZ #22097825) helps Nevada households build personalized withdrawal strategies that account for Social Security timing, tax efficiency, sequence of returns risk, and the unique advantages of Nevada's zero-income-tax environment, at no cost and with no obligation.
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