The 4% Rule Explained: How Much Do You Need to Retire?
What is the 4% rule?
The 4% rule is a rule of thumb for retirement spending. It says that if you withdraw 4% of your portfolio in your first year of retirement, then adjust that amount for inflation each year, your money has a very high chance of lasting at least 30 years.
Flip it around and it becomes a savings target:
FIRE number = annual expenses × 25
If you spend €30,000 a year, you need €750,000 invested. If you spend €50,000, you need €1,250,000. That single multiplication is why the 4% rule is so popular — it turns "how much do I need to retire?" into one number.
Where does it come from?
The rule comes from the Trinity Study (1998), which tested historical 30-year retirement periods using US stock and bond returns. A portfolio of roughly 50–75% stocks survived 30 years in about 95% of cases at a 4% starting withdrawal rate.
The 4% figure already bakes in inflation, market crashes, and bad-luck sequencing — it is not the average return, it is the safe withdrawal rate after accounting for the worst historical periods.
When the 4% rule breaks down
It is a starting point, not a guarantee. Be more conservative when:
- You retire very early. The Trinity Study covered 30 years. For a 40-year-old planning a 50+ year retirement, many planners drop to a 3.25–3.5% withdrawal rate (a 28–30× target).
- Future returns are lower than history. High valuations or low bond yields can reduce safe withdrawal rates.
- Your spending is inflexible. If you cannot cut back in a downturn, you carry more risk.
How to use it in practice
- Estimate your annual expenses in retirement.
- Subtract any guaranteed income (state pension, rental income).
- Multiply the remainder by 25 (for 4%) — or by 28–30 for an early, long retirement.
That gives the capital your portfolio actually needs to provide.
The FIR€$ calculator goes one step further than the 4% rule: instead of a flat multiplication it runs a year-by-year simulation that accounts for your pension starting at a different age, your loan being paid off, and inflation compounding — so your FIRE number reflects your timeline, not a one-size-fits-all multiple.
The bottom line
The 4% rule is the best back-of-the-envelope answer to "how much do I need?". Use it to set a target, then stress-test that target with a real simulation before you hand in your notice.