The 4% rule: how much you need to live off your investments
The 4% rule is a guide to how much you can withdraw each year from your portfolio without running out of money. In its classic version, you withdraw 4% of your wealth the first year and adjust that amount for inflation each following year.
Where does it come from?
It comes from the Trinity study (1998), which analysed stock and bond portfolios over historical 30-year periods. The conclusion: a 4% rate had a very high probability of not depleting the portfolio in three decades.
How to calculate your "number"
Wealth needed = Annual spending × 25
- Spend €1,500/month (€18,000/year)? You need ≈ €450,000.
- Spend €2,500/month (€30,000/year)? You need ≈ €750,000.
In the calculator's Goal tab you can see the estimated monthly income under the 4% rule for the wealth you project.
Try it yourself: use the compound interest calculator to simulate your case with your own numbers, see the charts and find your break-even point.
Limitations you should know
- Sequence-of-returns risk: a big crash early on is more dangerous than a late one.
- Very long horizons: for 40-50 years, many prefer 3.25%–3.5%.
- Taxes and inflation: the rule is a simplification.
Treat it as a compass, not a GPS: an excellent starting point to size your goal.