What the rule says
In the first year you withdraw 4 % of the wealth you have at the start of retirement. In every following year you withdraw the same amount, raised by inflation, regardless of how the markets do.
Rule
Withdrawal in every later year = previous year’s amount × (1 + inflation)
With €750,000 that is €30,000 in the first year, €2,500 a month. At 2 % inflation it becomes €30,600 in the second year and €31,212 in the third. The purchasing power of the withdrawal stays the same; its share of the current portfolio moves with the markets.
Where it comes from
In 1994, US financial planner William Bengen examined which withdrawal rate would have lasted in every historical period since 1926, with a portfolio of US stocks and US government bonds. His finding: 4 % lasted at least 30 years even for the worst starting years. In 1998, the so-called Trinity study, named after Trinity University in Texas, confirmed the picture with different stock shares and periods.
The rule is therefore a finding from one market and one era, not a law of nature. In the 20th century the US had one of the most successful stock markets in the world. In 2010, economist Wade Pfau ran the numbers for 17 countries from 1900 to 2008: in only four of them would 4 % have been safe in every period. For Germany the worst case was 1.1 %, for a retirement starting in 1914, and 4 % failed in a quarter of all 30-year periods. A 2025 study with data from 38 developed countries arrived at 2.3 % if the risk of running out of money is to be no more than 5 %.
Opinions vary accordingly. Bengen himself now considers 4.7 % sustainable with more broadly diversified portfolios (2025); Morningstar arrived at 3.9 % for US investors with 30 to 50 % in stocks at the end of 2025. For investors in Germany there is no comparable study with a global equity ETF in euros; the often-quoted 3 to 3.5 % is a rule of thumb, not a research result.
What it assumes
- 30 years: if you stop at 55 and plan to 95, you need 40.
- A high stock share: typically 50 to 75 % in the studies.
- No costs and no taxes: fund costs and tax on gains reduce what you can actually withdraw.
- Rigid withdrawals: no cuts, even in a crash.
- Lasting, not preserving: success means the money lasts 30 years. In some paths almost nothing is left at the end.
With your numbers
Prefilled with €750,000 and 4 % over 30 years. The default assumptions (7 % return, 2 % inflation, 12 % volatility) roughly match a broadly diversified portfolio with a high stock share; they are an assumption, not a forecast.
€30,000 a year, €2,500 a month
It lasts 30 years in 84 % of 2,000 market paths.
For 90 % certainty: up to 3.6 % (€27,108 a year). For 95 %: up to 3.2 %.
Probability that the money lasts 30 years, by withdrawal rate
99 %3.0 %
97 %3.5 %
91 %4.0 %
84 %4.5 %
75 %5.0 %
64 %5.5 %
52 %6.0 %
41 %
Remaining capital in today’s euros
Withdrawals at the start of each year, constant in today’s money. Without tax, health insurance and other income such as a pension or rent. Not a forecast and not a recommendation.
How much the assumptions matter
A Monte Carlo calculator is only as good as its assumptions. How likely a withdrawal rate is to last 30 years depends above all on the expected return. At 2 % inflation and 12 % volatility:
| Return per year | 4 % lasts in | 3.5 % lasts in | 3 % lasts in | Rate for 90 % |
|---|---|---|---|---|
| 5 % | 62 % | 75 % | 86 % | 2.8 % |
| 6 % | 74 % | 84 % | 92 % | 3.2 % |
| 7 % | 84 % | 91 % | 97 % | 3.6 % |
| 8 % | 91 % | 96 % | 99 % | 4.1 % |
More volatility lowers the numbers further: with 15 instead of 12 % volatility and a 7 % return, the 4 % rule lasts in 74 % of paths. The model draws every year independently; in real markets, bad phases were often followed by better ones. Monte Carlo results therefore tend to be somewhat more cautious than historical back-tests.
What changes in Germany
- Taxes: withdrawals from an ETF portfolio are partly gains. These are taxed at the flat 25 % rate plus solidarity surcharge, for equity funds on 70 % of the gain. Up to the saver’s allowance of €1,000 a year (€2,000 for couples filing jointly), income stays tax-free.
- Health insurance: if you stop working before your pension and are voluntarily insured in the public system, you pay contributions on investment income and rent too. That can easily be a few hundred euros a month that has to be withdrawn on top.
- State pension: once it starts, it covers part of your spending and the portfolio only has to fill the gap. Before that, it carries everything. These two phases are worked through in When can I retire?
- Currency: the studies calculated in US dollars with US inflation. Living in euros and investing globally adds currency swings.
Retiring earlier
The longer the money has to last, the lower the sustainable rate. With the calculator’s default assumptions:
| Period | 4 % lasts in | Rate for 90 % |
|---|---|---|
| 20 years | 98 % | 4.9 % |
| 30 years | 84 % | 3.6 % |
| 40 years | 71 % | 3.0 % |
| 50 years | 62 % | 2.7 % |
That is why the FIRE movement (financial independence, retire early), which aims to stop well before pension age, often works with 3 to 3.5 %.
Sequence of returns risk
In retirement, not only the average return counts but also its order. An example: €750,000, €30,000 withdrawn every year, 29 years at a steady 4.9 % real return and one single year with a 30 % loss.
| The loss year is | Wealth after 30 years |
|---|---|
| the first year | about €89,000 |
| the twentieth year | about €600,000 |
| no loss year | about €1.1M |
The same returns, only in a different order. If the slump comes right at the start, you sell at the bottom to fund the withdrawal, and that money is missing in the recovery. The first years of retirement are therefore the riskiest.
Flexible withdrawals
Rigid withdrawals are the strictest assumption. If you can tighten your belt in bad years, a higher rate can work. Common approaches:
- Guardrails: if losses push the current withdrawal rate well above where it started, the withdrawal is cut, for example by 10 %; after good years it may rise.
- No inflation increase after a losing year: the amount stays flat for that year.
- Buffer: one to two years of withdrawals in a savings account, so nothing has to be sold in a crash.
- Fixed percentage of the current portfolio: the money never quite runs out, but the income moves with the markets.
How much do I need?
In reverse, the rule gives a target:
Formula
| Gap per month | at 4 % | at 3.5 % | at 3 % |
|---|---|---|---|
| €1,000 | €300,000 | €343,000 | €400,000 |
| €2,000 | €600,000 | €686,000 | €800,000 |
| €3,000 | €900,000 | €1,029,000 | €1,200,000 |
This is the gap that the state pension, company pension and rent do not cover, before tax and health insurance. How big it is for you is calculated in Calculating your pension gap.
Sources
- 01Pfau (2010): An International Perspective on Safe Withdrawal Rates, working paper
- 02Anarkulova, Cederburg, O’Doherty, Sias (2025): Journal of Pension Economics and Finance
- 03Advisor Perspectives (2025): Bill Bengen boosts the 4 % rule to 4.7 %
- 04Morningstar (2025): safe withdrawal rate for retirees in 2026
- 05§ 20 (9) EStG (Income Tax Act): saver’s allowance
Rules and figures as of