Safe Withdrawal Rate.

In plain English

The safe withdrawal rate is a rule of thumb for how much of your retirement savings you can spend each year and still expect the money to last for decades. The best-known version is the 4% rule: take out 4% of your balance in year one, then increase that dollar amount each year by inflation, regardless of what the market does. It comes from a study of historical U.S. market returns, and it is an estimate, not a guarantee. Long retirements, a bad run of early market years, or higher spending can all break it, which is why many people treat it as a starting point rather than a promise.

01Why it matters

It answers the question that keeps people up at night: how big does my nest egg need to be, and how much can I actually spend without going broke in my 80s.

02The math, step by step

A retiree with $1,000,000 using the 4% rule withdraws $40,000 in the first year. If inflation that year is 3%, the next year's withdrawal becomes about $41,200, not 4% of the new balance. The dollar amount steps up with inflation each year, not the percentage of the current balance.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT