What exactly is the 4% rule?

The 4% rule states you can safely withdraw 4% of your retirement portfolio value in the first year, then adjust for inflation each year. Based on historical US market data, this strategy has worked 95%+ of the time for 30+ year retirements. £750,000 ÷ 25 = £30,000 annual income.

Is the 4% rule still valid in today's market?

Debated but still useful as a starting point. Some argue for 3-3.5% due to lower expected returns and longer lifespans. The 4% rule remains a solid rule of thumb, especially if you're still years away from retirement — it gives you a quick target to aim for without needing precise calculations. As you get closer to retirement, you can refine your number based on your actual portfolio, spending flexibility, and planned retirement length.

How does the 4% rule work with UK investments and pensions?

The rule was based on US markets but applies globally. UK considerations: different market performance, currency risk, and tax treatment. Factor in ISA tax efficiency and State Pension timing. Many UK retirees use 3.5% to be more conservative.

What happens if I withdraw more than 4% in a bad market year?

This is sequence risk - withdrawing in downturns permanently damages your portfolio. Solutions: have 1-2 years cash reserves, be flexible with spending, work part-time, or use dynamic withdrawal strategies. The first 5-10 years of retirement are most critical.

Should I use 4% of pre-tax or post-tax money?

Use your net (after-tax) income needs, then calculate the gross amount required. In the UK, consider ISA withdrawals are tax-free, but pension withdrawals have tax implications. Calculate based on your expected tax situation in retirement.

How does inflation affect the 4% rule?

The 4% rule assumes you'll increase withdrawals by inflation each year. This is why it's designed to be conservative - it accounts for both market volatility and inflation. High inflation periods are challenging, which is why some prefer 3-3.5% for extra safety.

What are alternatives to the 4% rule?

Dynamic withdrawals (adjust based on market performance), bucket strategy (separate money by time horizon), required minimum distribution (RMD) method, or the 3.5% rule for more safety. Some use a 'guardrails' approach - increase spending in good years, decrease in bad years.

What is the 4% Rule?

The "gold standard" rule of thumb for retirement planning. It remains a useful starting point, especially if retirement is still years away.

Syd Lawrence

19 May 2026

The Basics

The 4% Rule states that you can withdraw 4% of your portfolio's initial value in the first year of retirement, and then adjust that pound amount for inflation every subsequent year, with a high probability of not running out of money for 30 years.

Example Calculation

If you retire with a £500,000 portfolio:

Year 1: Withdraw £20,000 (4% of £500k).
Year 2: If inflation is 3%, you increase the withdrawal by 3%.
£20,000 + (£20,000 × 0.03) = £20,600.
Year 3: Adjust the £20,600 by Year 2's inflation rate, and so on.

Where Did It Come From?

It was introduced by financial advisor William Bengen in 1994. He analysed historical market data (US stocks and bonds) to find a withdrawal rate that survived every 30-year period in history, including the Great Depression and the high-inflation 1970s.

Later, the famous "Trinity Study" (1998) by professors at Trinity University corroborated his findings, popularising the rule further.

Updated for 2026: Bengen's 4.7% Rule

In 2026, William Bengen updated his research and concluded that the original 4% rule was too conservative for modern markets. He now recommends a 4.7% withdrawal rate as the new "safe" rate for a 30-year retirement, based on more recent market data and extended historical analysis.

This doesn't mean you should immediately withdraw 4.7% — it reinforces that the "right" rate depends on your specific circumstances, spending flexibility, and how long you need your money to last. It's also worth noting that UK investors may still want to use more conservative rates given historical differences in market returns.

Is it Safe for UK Investors?

Why it might work

It provides a steady, inflation-adjusted income, which is great for budgeting.
It's simple to understand and implement.
Historically, it has a high success rate (95%+ in US data).

Why use caution

UK vs US Data: UK markets have historically had lower returns than the US. Some researchers suggest a 3.0% - 3.5% rate is safer for the UK.
Longer retirements: If you retire early (e.g., at 40), you need your money to last 50+ years, not just 30. This lowers the safe withdrawal rate.
Valuations: When stock market valuations are high, future returns tend to be lower.

How to Use Delphina to Check Your Rate

Don't guess. Use our tools to test if a 4% withdrawal rate will work for your specific portfolio and timeline.

Monte Carlo Simulation

Run 1,000s of scenarios to see the probability of your portfolio surviving at a 4% withdrawal rate.

Custom Scenarios

Compare a 3.5% vs 4% withdrawal rate to see how it impacts your ending portfolio value.

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