4% Rule Calculator

About the 4% Rule Calculator

The 4% rule suggests you can withdraw 4% of your portfolio in year one (adjusted for inflation thereafter) with a high chance the money lasts 30 years. The target portfolio is annual spending ÷ withdrawal rate.

How to use this calculator

1. Enter your expected annual retirement spending in dollars.
2. Choose a withdrawal rate, usually \(4\%\) or \(0.04\).
3. The calculator divides your spending by the withdrawal rate to estimate your target nest egg.
4. Review the result and compare it with your current savings plan.

The formula explained

The formula \(nest\ egg = \frac{annual\ spending}{withdrawal\ rate}\) computes the amount of money you would need to support a chosen yearly spending level. It turns a yearly expense target into a total retirement savings target.

• \(nest\ egg\) = the estimated retirement savings needed
• \(annual\ spending\) = the amount you plan to spend each year in retirement
• \(withdrawal\ rate\) = the fraction of your portfolio you plan to withdraw each year, such as \(0.04\) for \(4\%\)

Step by step method

1. Write down your expected yearly retirement spending, for example \(\$40{,}000\).
2. Convert the withdrawal rate to a decimal, for example \(4\% = 0.04\).
3. Divide \(annual\ spending\) by \(withdrawal\ rate\) to find the required nest egg.

Worked example

Problem. Suppose you expect to spend \(\$48{,}000\) per year in retirement and use the \(4\%\) rule. What nest egg do you need?

1. Use the formula \(nest\ egg = \frac{annual\ spending}{withdrawal\ rate}\).
2. Substitute the values, \(nest\ egg = \frac{48{,}000}{0.04}\).
3. Compute the result, \(nest\ egg = 1{,}200{,}000\).

Tips and common mistakes

• Be careful to enter the withdrawal rate as a decimal, not as \(4\). Use \(0.04\) for \(4\%\).
• The \(4\%\) rule is only an estimate, so taxes, inflation, and your actual spending needs can change the result.

Frequently asked questions