Every FIRE calculator — including the ones on this site — uses some version of the same shortcut: multiply your annual spending by 25, and that’s roughly how much you need to retire. That shortcut comes from the 4% rule. It’s repeated constantly and explained rarely. Here’s where it actually comes from, what the original research found, and where it starts to break down.
Where the 4% Rule Comes From
The 4% rule traces back to a 1994 paper by financial advisor William Bengen, published in the Journal of Financial Planning. Bengen tested historical U.S. stock and bond returns going back to 1926 to find a withdrawal rate a retiree could sustain for a 30-year retirement without running out of money — even if they retired at the worst possible moment in his dataset.
He found that an initial withdrawal rate of approximately 4%, followed by inflation-adjusted withdrawals, survived the historical periods he studied. That research became the foundation of what is now commonly called the “4% rule.”
The research was expanded in 1998 by Trinity University professors Philip Cooley, Carl Hubbard, and Daniel Walz. Their study examined different withdrawal rates, retirement periods, and stock/bond allocations, showing that withdrawal sustainability depends heavily on both portfolio composition and the length of retirement.
The Actual Formula
The 4% rule translates directly into the 25x shortcut used throughout our calculators:
FIRE Number = Annual Expenses ÷ 0.04 = Annual Expenses × 25
If you plan to spend $50,000 per year in retirement:
$50,000 × 25 = $1,250,000
That gives you an estimated FIRE number of $1.25 million. You can apply the formula directly with our FIRE Calculator.
What the Research Actually Tested — and Didn’t
It’s important to understand what the original research actually modeled because the 4% rule is often treated as more universal than it really is.
- Historical U.S. market data: Past U.S. investment returns do not guarantee similar future returns.
- Retirement length: The commonly cited rule is generally associated with roughly a 30-year retirement horizon. Someone retiring very early may need their portfolio to last considerably longer.
- Portfolio allocation: Results vary depending on the mix of stocks and bonds.
- Spending flexibility: Real retirees may increase or reduce spending depending on market conditions, while historical withdrawal studies often test predefined withdrawal strategies.
Why Some FIRE Planners Use 3% to 3.5% Instead
Early retirement can create a much longer withdrawal period than a traditional retirement. Someone retiring at 40, for example, may need their portfolio to support 50 years or more of spending.
For that reason, some FIRE planners choose a more conservative withdrawal rate such as 3% or 3.5% as an additional margin of safety.
A 3.5% withdrawal rate corresponds to roughly 28.6 times annual expenses, while a 3% rate corresponds to about 33.3 times annual expenses.
You can test different assumptions with our How Long Will My Money Last Calculator rather than relying on one fixed withdrawal rate.
What This Means for Your FIRE Number
The 4% rule is best viewed as a historically grounded starting point, not a guarantee.
Start by estimating your target with the FIRE Calculator. Then stress-test your retirement plan using the How Long Will My Money Last Calculator with different spending, return, inflation, and withdrawal assumptions.
Frequently Asked Questions
Is the 4% rule still accurate today?
The 4% rule remains a widely used retirement-planning benchmark, but it is based on historical market performance. Future returns, inflation, retirement length, fees, taxes, and portfolio allocation can all affect actual results.
Who created the 4% rule?
Financial advisor William Bengen published influential withdrawal-rate research in 1994. Philip Cooley, Carl Hubbard, and Daniel Walz later expanded the analysis in the 1998 research commonly known as the Trinity Study.
Is 4% too aggressive for early retirement?
It may be for some plans. Early retirees can face substantially longer retirement horizons than the periods commonly associated with the 4% rule. Using a lower withdrawal rate is one way to build a larger margin of safety.
Sources and Further Reading
William P. Bengen. “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning, 1994.
Read the archived paper
Philip L. Cooley, Carl M. Hubbard, and Daniel T. Walz. “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable.” AAII Journal, 1998.
Read the Trinity Study
Calculate Your Own Retirement Number
Ready to put the research into your own numbers? Calculate your FIRE number, then test how long your retirement savings may last under different assumptions.
This article is for educational purposes only and does not constitute financial, tax, or investment advice. Historical withdrawal-rate research is based on past market data and does not guarantee future results. Consult a qualified financial professional before making retirement decisions. © IndependenceCompass.com