If you've spent any time in the FIRE community, you've heard the number: 4%. Withdraw 4% of your portfolio per year and it should last forever. But where does that number come from, how reliable is it, and how do you use it to calculate your FIRE number?
Where the 4% rule comes from
The 4% rule originates from two seminal pieces of research. The first is William Bengen's 1994 paper Determining Withdrawal Rates Using Historical Data, which analysed historical US stock and bond returns from 1926 to 1976 to find the maximum withdrawal rate that never ran out of money over 30-year periods. He found 4.15% — rounded to 4% — to be a robust safe withdrawal rate.
The second is the Trinity Study, published in 1998 by three professors at Trinity University. They extended Bengen's work, testing various portfolio allocations (100% stocks to 100% bonds) and withdrawal rates across 30-year rolling periods. Their conclusion: a 4% withdrawal rate from a 50/50 stock-bond portfolio succeeded in 95% of historical scenarios.
The 25× rule of thumb
A 4% withdrawal rate is the same as having 25× your annual expenses. If you spend CHF 60,000/year, your FIRE number is CHF 1,500,000 (CHF 60,000 × 25).
How to calculate your FIRE number
The formula is simple:
At 4% SWR: CHF 48,000/year ÷ 0.04 = CHF 1,200,000
At 3.5% SWR: CHF 48,000/year ÷ 0.035 = CHF 1,371,429
At 3% SWR: CHF 48,000/year ÷ 0.03 = CHF 1,600,000
The choice of SWR has a dramatic effect on your FIRE number — and therefore on how long you need to save. Reducing monthly expenses is often more powerful than tweaking your SWR.
Is the 4% rule still valid?
This is the most debated question in the FIRE community. The short answer: it depends on what you're planning for.
The original research was based on US market data and a 30-year retirement horizon. Early retirees often plan for 40–50 years. More recent research — including updated Trinity Study data and analysis by Karsten Jeske (Early Retirement Now) — suggests that a 3.25%–3.5% SWR is safer for longer retirements, especially in periods of elevated market valuations.
| Retirement horizon | Suggested SWR | Notes |
|---|---|---|
| 30 years | 4.0% | Original Trinity Study baseline |
| 40 years | 3.5% | Commonly recommended for early retirees |
| 50+ years | 3.0%–3.25% | For retirements starting in the 30s–40s |
Sequence-of-returns risk
The biggest threat to a 4% withdrawal strategy isn't a low average return — it's getting unlucky with the order of returns. A severe market crash in the first five years of retirement forces you to sell assets at depressed prices. Those shares are gone and can't participate in the eventual recovery. This is called sequence-of-returns risk.
The deterministic simulation in FireClarity uses a single assumed return rate. The Monte Carlo simulation models 1,000 different return sequences — some with bad first decades, some with good ones. The success rate tells you what percentage of market histories end with your portfolio intact.
When to use a lower withdrawal rate
- →You're retiring before 45 (40+ year horizon)
- →You have no flexibility to reduce spending in bad markets
- →You have no other income sources (pension, part-time work, rental)
- →You're investing in a non-US market with lower historical returns
The bottom line
The 4% rule is an excellent starting point and a reasonable baseline for most retirement planning. It's not gospel. Real-world retirees typically have some spending flexibility, other income sources, and willingness to adapt. The Monte Carlo success rate matters more than any single percentage.
Run the numbers with the FireClarity calculator. Try different SWR values and see how dramatically your FIRE number — and years-to-FIRE — changes. Then run Monte Carlo to see which rate gives you the confidence you need.
Try it yourself
Use the Traditional FIRE calculator to find your FIRE number and simulate your full retirement portfolio.
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