4% rule

Investierenab 13 J.

The most famous withdrawal rule: withdraw 4% of your portfolio each year – historically that lasts for 30+ years. With €500,000: €20,000/year = €1,667/month.

The 4% rule is the best-known rule of thumb for withdrawals in retirement.

The rule: in the first year of retirement you withdraw 4% of your portfolio. In the following years you adjust the amount for inflation. Result: statistically, your money lasts for at least 30 years.

Examples:

• €250,000 portfolio × 4% = €10,000/year (€833/month)
• €500,000 × 4% = €20,000/year (€1,667/month)
• €750,000 × 4% = €30,000/year (€2,500/month)
• €1,000,000 × 4% = €40,000/year (€3,333/month)

The other way round – how much do you need?

You need €2,000/month = €24,000/year. Divided by 4% = €600,000 portfolio.

Criticism: the rule is based on US data from 1926–1993. In future, lower returns and higher inflation could lower the safe withdrawal rate to 3–3.5%. Flexibility is key.

Did you know? William Bengen, who developed the 4% rule in 1994, later said: “4% is a floor, not a ceiling. Most retirees can withdraw more – if they are flexible.”

→ ETF-Rechner → Rentenrechner

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