4 Percent Rule

Wade Pfau, Ph.D., CFA

by Wade Pfau, Ph.D., CFA

December 30, 2015

The 4 percent rule states that retirees who withdraw 4 percent of their initial retirement portfolio balance, and then adjust that dollar amount for inflation each year thereafter, will create a paycheck that lasts for 30 years. Created by Bill Bengen, a financial planner, in 1994, the 4 percent rule applies to retirement spending. Bengen created it as a rule of thumb for retirees who were unsure of how much money they could spend each year without draining their savings.