Definition
A retirement planning guideline: withdrawing 4% of a diversified portfolio in the first year, then adjusting that amount for inflation, has historically survived essentially every 30-year retirement in U.S. market data. It implies a savings target of about 25 times annual spending.
Why it matters
The 4% rule turns a vague goal (enough to retire) into a concrete number you can plan toward. It is the arithmetic behind every FIRE number and most retirement targets.
Example
Spending $50,000 a year implies a target of $1.25 million (25 times spending). In year one you withdraw $50,000, then raise the withdrawal with inflation each year; historically that portfolio survived essentially every 30-year retirement.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.