What Is the Safe Withdrawal Rate?

The Safe Withdrawal Rate (SWR) is a crucial retirement planning formula that calculates the maximum percentage of your total savings you can withdraw in your first year of retirement, and then adjust for inflation annually, with a high probability that your money will not run out before you die.

The History of the 4% Rule

The 4% rule was established by William Bengen in 1994. By analyzing historical market returns of a 50/50 stock and bond portfolio over several rolling 30-year periods (including through the Great Depression and stagflation of the 1970s), Bengen found that a 4% initial withdrawal rate never exhausted the portfolio in less than 30 years. Today, some planners recommend safer rates of 3% to 3.5% for early retirees or longer retirement periods.