Safe Withdrawal Rate (SWR)
The safe withdrawal rate is the maximum percentage of a retirement portfolio you can withdraw annually without running out of money over a given time horizon. The 4% rule is the most widely cited guideline.
A $1,000,000 portfolio at 4% SWR supports $40,000/year in withdrawals.
The 4% rule originates from the Trinity Study (1998), which analysed US historical market returns and found a 4% withdrawal rate sustained a portfolio for 30 years in the vast majority of scenarios.
For longer retirements (40+ years, as with early retirees), many researchers recommend 3.0%–3.5%. For a 30-year traditional retirement, 4% remains widely accepted.
The rule assumes a diversified portfolio (roughly 50–75% stocks), inflation-adjusted withdrawals, and US/global historical market conditions. Recent low-bond-yield environments have led some researchers to recommend slightly lower rates.
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- FIRE Number
- Your FIRE number is the portfolio size needed to retire early and live off investment returns indefinitely. It is calculated as your annual expenses multiplied by 25 (the inverse of the 4% safe withdrawal rate).
- Asset Allocation
- Asset allocation is the percentage split of a portfolio among different asset classes — typically stocks, bonds, and cash. It is the primary driver of long-term portfolio risk and return.
- Financial Independence (FI)
- Financial independence means having enough invested assets to cover your living expenses indefinitely without working. It is the point where your investment returns equal or exceed your annual spending.