How much retirement can 4% buy?

The 4% rule makes retirement seem surprisingly easy to calculate. The rule says: estimate the annual spending your investments need to cover, multiply by 25, and you have a savings target, invested in a certain type of portfolio. If you need $40,000 a year, you’re aiming for $1 million.

Getting the million dollars may take some effort, but at least the multiplication is pleasant.

That annual spending estimate deserves a closer look. To build a retirement plan around it, you’re making assumptions about where you’ll live, whom you’ll support, and what you’ll want to do for several decades. You also have to imagine how much those things will matter to a future version of yourself.

Research suggests we make some predictable mistakes here. Economist Hannes Schwandt compared people’s expectations about their life satisfaction five years ahead with their later answers. Younger adults tended to overestimate how satisfied they would be; older adults tended to underestimate it. Their forecasts showed systematic errors across different socioeconomic groups.

A separate series of studies involving more than 19,000 participants examined expectations about changes in personality, values, and preferences. People generally anticipated less change over the next ten years than people ten years older reported experiencing over the previous decade. The researchers called this the end of history illusion. We recognize how much we’ve changed, then seem to assume we’ve finally arrived at the version of ourselves that will stick.

I’d be reluctant to build a 30-year spending plan around that assumption.

Over that much time, decisions can affect one another. Moving somewhere new can change whom you meet. A relationship can influence where you want to live and whether you have children. Having children can change how you spend your time and what you want from work or travel. Health and circumstances can redirect plans you were quite happy with. Later decisions introduce possibilities you hadn’t considered when you made the original budget.

When I reached financial independence, I was single and had no family to support. I kept withdrawals below 4% for a pretty long time. My expenses made that possible, and I still had plenty of anxiety about whether the money would last. My spending eventually changed considerably.

Before using 4% to decide whether I could leave a paycheck behind, I’d want to understand how the withdrawal research handles spending, then consider how much room my own plan leaves for it to change.

What the original research tested

In 1994, financial planner William Bengen examined how portfolios of U.S. stocks and Treasury bonds would have held up through historical retirement periods. His research became the basis of the 4% rule: withdraw roughly 4% of the portfolio’s starting value in the first year, then adjust that dollar amount for inflation each year. The familiar guideline aimed to support at least 30 years of withdrawals through the historical conditions he studied.

For a $1 million portfolio, that means $40,000 in the first year. With 3% inflation, the next withdrawal would be $41,200. You continue following the spending calculation even when the portfolio’s value changes.

Withdrawing 4% of the current balance each year would produce a different experience. Your income would fall after market losses and rise after gains. Taking a fraction of the remaining balance avoids exhausting the account through withdrawals alone, but the income could become uncomfortably small.

The original method sought to preserve spending power. Its historical results depended on the investments, rebalancing, withdrawal schedule, and retirement length being tested. Those results don’t establish what will happen in a future retirement. Applying the method to your own accounts also requires accounting for taxes and investment costs.

An inflation adjustment covers increases in prices. Moving into a larger home or adding another person to the household changes the spending itself.

Early retirement stretches the calculation

Someone retiring at 40 could need the portfolio to support spending for 50 years or longer. That creates more opportunities for poor returns, high inflation, and changes in expenses. Social Security may eventually contribute income, while health insurance before Medicare needs separate planning.

The order of investment returns matters, too. Early losses combined with withdrawals can leave less money invested for the eventual recovery. Two retirees can experience similar average returns and have different outcomes because their bad years arrive at different times.

In its December 2025 research, Morningstar estimated a starting withdrawal rate of 3.9% for 30 years of inflation-adjusted spending, with a 90% modeled probability of money remaining at the end. For a 40-year horizon, its highest comparable rate was 3.3%. These estimates use assumptions about future returns and inflation; individual taxes and investment fees are excluded from the base calculation.

That doesn’t establish 3.3% as the correct rate for every early retiree. Forty years may still be too short. Future income and the ability to reduce spending also affect how much a household can reasonably withdraw.

Even the definition of success deserves attention. A model that finishes with money remaining has met its stated test. You might have additional requirements, such as leaving an inheritance or maintaining enough resources to feel comfortable late in life.

Bengen has continued revising his work

In his current explanation, Bengen gives a historical minimum starting rate of about 4.7% for his expanded approach, which includes more asset classes than the original research. That figure comes from a particular portfolio and method. It needs those details attached when someone uses it in a retirement plan.

He has also expressed concern about retirees spending too little. In a June 2026 interview, he discussed people whose caution prevents them from enjoying the retirement they could afford. That concern is worth considering alongside the possibility of running short.

The difference between his findings and Morningstar’s estimates is understandable. Historical testing asks how a strategy performed through past conditions. Forward-looking models generate possible outcomes using estimates of future conditions. Changing either the method or the assumptions can change the resulting withdrawal rate.

His recent work also complicates the idea that a longer retirement automatically calls for more stocks. In a March 2026 historical comparison, a much more stock-heavy portfolio supported higher withdrawals on average, while producing a lower sustainable rate in the worst period tested. A strong average result offers limited comfort if your retirement begins during that worst period.

I wouldn’t be tempted to just pick whichever published percentage makes my savings target easiest to reach. I’d want to understand why the results differ and which assumptions fit my circumstances.

My spending took time to catch up

After I sold Consumerism Commentary, most of the sale payments arrived over two years. During that period, I worried about whether something might happen to the buyer before I received everything. Beyond that, I worried about whether the money would last and what a market crash could do.

Financial independence came with a considerable amount of financial anxiety.

My wealth grew before my lifestyle changed much. Keeping withdrawals low left more money invested. I can’t attribute the subsequent growth entirely to that decision, or say precisely how much additional caution I needed. Markets and other financial circumstances affect the outcome, too.

Several years after the final sale payment, I moved from a one-bedroom apartment into a three-bedroom apartment. I wanted room to explore photography and a more comfortable home office, and I had been feeling a little cramped for a while. Those were uses for the space that mattered to me, and I gradually became more comfortable making changes like that.

Marriage and children brought different expenses, including preschool. Travel and experiences became worthwhile ways to spend time and money. The budget that had worked for me as a single guy would have needed substantial revisions to describe our household.

I also allowed myself some purchases simply because I expected to enjoy them. In 2023, I bought an Alfa Romeo Giulia Quadrifoglio. I’ve always loved driving and road trips, and this was a splurge for myself that I knew I’d enjoy. It has been fantastic to drive. In my ownership, it also hasn’t produced the problems people associate with older Alfas, which has left me more time to enjoy the car than defend it.

A large purchase like that needs room in a financial plan. So do recurring family expenses, although they affect future spending differently. If I’d projected my original annual budget forward indefinitely, I would have left out quite a bit of the life I eventually chose.

Decide what you would actually adjust

I still think 4% is a useful place to begin estimating a retirement target. Before leaving work, I’d develop that estimate into a plan with a realistic time horizon, taxes, healthcare costs, and the income I expected from other sources.

I’d also give “we can spend less if necessary” some actual numbers. Postponing a car purchase or taking a less expensive vacation could meaningfully reduce spending in a particular year. Rent, medical care, and costs involving children may offer much less flexibility. A plan should identify how much spending is adjustable and how long the household could sustain those reductions.

There should be a way to consider increases, too. Someone who has accumulated more than the plan requires may have room to spend more. That decision warrants a review of future needs and risks, especially after a strong stretch in the market. Keeping withdrawals low indefinitely can become a habit even after the circumstances that justified it have changed.

My own changes happened gradually. I needed time to feel more secure, and my reasons for spending developed as my life changed. Having a family also gave me expenses I hadn’t faced when I first reached financial independence.

If I were building the plan from scratch today, I’d start with the cost of supporting our household and look ahead to how those costs might change as the kids grow up. I’d account separately for occasional large purchases, ongoing expenses, and spending we could realistically postpone. Then I’d test whether our resources could support that budget over the years ahead, including some difficult ones.

Before committing to another substantial ongoing expense, I’d repeat that review with lower investment returns and less room to cut spending. I’d want to see how we would continue paying the bills if the new expense arrived just as the portfolio had a difficult year.