The 4% rule (a.k.a. "25 times your annual expenses")
The 4% rule says that if you withdraw 4% of your retirement portfolio in your first year of retirement, then adjust that dollar amount for inflation each following year, a portfolio invested in a diversified stock/bond mix has historically had a high probability of lasting at least 30 years without running out. Because 4% is 1/25th, this is mathematically the same as saying you need roughly 25 times your annual expenses saved before retiring.
The rule traces back to financial planner William (Bill) Bengen, who published the original 4% withdrawal-rate research in the Journal of Financial Planning in 1994, based on historical US market data. It was then popularized more widely as the "Trinity Study" — a 1998 paper by three finance professors at Trinity University who tested a range of withdrawal rates against historical market returns. The original Trinity Study found a 4% withdrawal rate succeeded (did not run out of money) in about 95% of the historical 30-year periods they tested.
What 25x looks like in dollars
If you estimate you'll need $60,000/year in retirement (from savings, not counting Social Security or other income), the 25x rule suggests a target portfolio of roughly $1,500,000. If your expected spending from savings is $40,000/year, the target is roughly $1,000,000. This scales linearly — the multiple (25x) stays the same regardless of your spending level.
Sources: William P. Bengen, "Determining Withdrawal Rates Using Historical Data," Journal of Financial Planning, 1994 (the original 4% rule research); the 1998 Trinity University study that popularized the "Trinity Study" name and tested a range of withdrawal rates and portfolio allocations against historical data.
Important caveats about the 4% rule
- It was modeled on a 30-year retirement. If you plan to retire earlier and need your money to last longer than 30 years, many researchers — including more recent analysis — suggest a more conservative withdrawal rate (closer to 3-3.5%) may be more appropriate.
- ~95% historical success is not 100%. The original study found some historical periods (particularly those starting with poor early market returns) where a 4% withdrawal rate would have depleted the portfolio before 30 years. Past performance also doesn't guarantee future market behavior.
- It doesn't account for your specific spending flexibility, other income, taxes, or healthcare costs — it's a portfolio-longevity approximation, not a full retirement plan.
Age-based savings-multiple benchmarks
A different, complementary way to gut-check your progress is comparing your current retirement savings to your salary at various ages. Fidelity Investments publishes commonly cited benchmarks along these lines:
| Age | Suggested savings, as a multiple of annual salary |
|---|---|
| 30 | 1x salary |
| 40 | 3x salary |
| 50 | 6x salary |
| 60 | 8x salary |
| 67 | 10x salary |
Fidelity's methodology assumes a starting salary at age 25, retirement at age 67, an age-based (target-date-style) asset allocation, a 15% total savings rate (including any employer match), 1.5% constant real wage growth, and planning for expenses through age 93. Someone with different assumptions — retiring earlier, spending more conservatively, or with significant income from other sources — would reasonably land on different multiples.
Source: Fidelity Investments, "How much do I need to retire?" — fidelity.com.
How to use these together
The 4% rule (25x expenses) is best used as a target for your total portfolio at retirement, based on your actual expected spending. The age-based multiples are better used as a rough progress check along the way, since they're pegged to salary rather than spending and adjust automatically for where you are in your career. Neither is a substitute for a full financial plan that accounts for your specific circumstances — Social Security timing, pensions, expected healthcare costs, and how flexible your spending can be in a market downturn all matter significantly and aren't captured by either heuristic.
Frequently asked questions
Is the 4% rule guaranteed to work?
No. It's based on historical US market data with a roughly 95% historical success rate over 30-year periods in the original research — not a guarantee. Some researchers suggest more conservative rates for longer retirements or as a hedge against future returns being worse than historical averages.
Does 25x my expenses include Social Security?
Generally no in the simplest version of the rule — it's typically applied to the amount you need your portfolio to cover. If you expect meaningful Social Security or pension income, your required portfolio-funded spending (and therefore your 25x target) would be smaller than your total retirement spending.
What if I'm behind these age-based benchmarks?
These are general benchmarks, not a verdict — many people's actual savings trajectories don't match a smooth curve, and various life factors (career changes, education debt, starting to save later) affect this. Consider using the retirement calculator to project forward from your actual current savings and contribution rate rather than only looking backward at a benchmark.
Should I follow these rules exactly?
These are general educational heuristics from well-known, widely cited research and industry publications, not a personalized recommendation for your situation. A financial advisor can help translate these general concepts into a plan based on your actual income, expenses, timeline, and risk tolerance.