4% Rule

The 4% Rule is a widely cited rule-of-thumb for retirement withdrawal: spend 4% of your portfolio in year one of retirement, then increase that rupee/dollar amount by inflation every subsequent year, and your money should last at least 30 years. It came out of the 1998 Trinity Study by three Trinity University professors who back-tested US stock/bond portfolios through every 30-year window since 1926. A 4% rate succeeded in more than 95% of rolling windows with a 50/50 or 60/40 mix.

Inverted, the 4% rule gives you the classic FIRE target of 25× annual expenses — if you spend ₹15 lakh/year, a ₹3.75 crore portfolio theoretically funds retirement indefinitely. Example: retire at 55 with ₹5 crore, plan to spend ₹20 lakh in year 1 (4% of 5 crore), raise that by actual inflation each year; by year 30 you might be withdrawing ₹60 lakh in nominal terms, still within safe bounds.

Caveats are important. The study used US equity risk premium, which was exceptional; back-tests on international markets (Japan, UK, emerging markets) support only 2.5–3.5% safe rates. For 40+ year horizons (early retirement), researchers like Wade Pfau recommend 3.3%. Sequence-of-returns risk in the first 5 years is decisive.

Stress-test your own retirement with our SWP calculator at different withdrawal rates, return assumptions, and inflation paths.