Where the 4% rule comes from
The arithmetic of financial independence rests on a 1994 paper by William Bengen, Determining Withdrawal Rates Using Historical Data. Using U.S. stock and bond return data from 1926 to 1992, Bengen showed that a retiree drawing 4% of an initial 50/50 portfolio in year one, then increasing the withdrawal annually for inflation, would not have outlived their savings in any historical 30-year window. The reciprocal of that 4% — multiply your annual expenses by 25 — gives a target portfolio that, in theory, can fund those expenses indefinitely.
The 1998 Trinity Study (Cooley, Hubbard & Walz, 1998) reached the same conclusion using a slightly different methodology and 15- to 30-year horizons. Between them, the "4% rule" became the back-of-envelope benchmark for early retirement planning.
What this calculator does
The calculator inverts the Bengen math. You provide:
- Annual expenses you want the portfolio to cover indefinitely
- Optional: expected real return, current savings, monthly contribution
And it returns:
- Your FIRE number — annual expenses ÷ safe withdrawal rate
- Estimated years to reach that number at your current saving rate, using compound growth at the entered real return
Default safe withdrawal rate is 4%. Default real return is 5% — broadly the long-run U.S. equity real return, adjusted downward to stay conservative.
A worked example
Annual expenses €30,000, current savings €50,000, monthly contribution €1,500, expected real return 5%:
- FIRE number = €30,000 ÷ 0.04 = €750,000
- Years to reach €750,000 from €50,000 at €1,500/month, 5% real return: ≈ 20 years
Limitations
The 4% rule is historically American. Pfau (2010) examined 17 developed economies and found the historically safe withdrawal rate ranged from 1.8% to 5.0% — Japan and Italy were not survivable at 4% across all 30-year windows. If your portfolio is heavily home-biased outside the U.S., the rule is more optimistic than the data support.
The rule additionally assumes:
- A 30-year retirement horizon. Early retirees often need 50+ years; the safe rate drops to roughly 3.3% at a 50-year horizon in most retrospective analyses.
- An equity-heavy portfolio (50/50 to 75/25 stocks/bonds).
- Constant inflation-adjusted withdrawals. Real retirees adjust spending dynamically — most end up doing better than 4%, but some sequences require pulling back temporarily.
- That the future resembles the past in equity premium and bond yields. Both have been below long-run averages for stretches of the past two decades.
Sequence-of-returns risk — bad market returns early in retirement disproportionately damage long-term sustainability — is the dominant failure mode. A 4% rule retirement that starts in 2000 or 1929 is in trouble for years even though both eventually recovered.
This is not financial advice. The calculator does not model taxes, healthcare costs, social security or state pensions, dynamic spending strategies, glide-path adjustments, or your actual tolerance for portfolio drawdowns of 30–50% during a sustained bear market. For a real plan, consult a fee-only financial advisor.