Planning for retirement
The 4% Rule and the 7% Rule for Retirement: What Each One Means
The 4% rule says you can take 4% of your savings in your first year of retirement, raise that dollar amount with inflation each year after, and expect the money to last about 30 years. The "7% rule" is the same idea with 7% in place of 4%, and no published study we could find supports it for a 30-year retirement.
Key points
- The 4% rule comes from a 1994 study by financial planner William Bengen, later echoed by the 1998 "Trinity study."
- Morningstar's most recent estimate, published December 3, 2025, puts the safe starting rate for new retirees at 3.9%.
- "The 7% rule" gets used two ways: as a 7% withdrawal rate, and as a 7% assumed yearly return. They aren't the same thing.
- Under simple, steady assumptions, a 7% inflation-adjusted withdrawal empties an account in roughly 14 to 20 years.
- Both rules are starting points for your own math. Neither one is a promise.
What is the 4% rule?
It's a rule of thumb for how much you can spend from savings each year without running dry. You take 4% of your balance in year one. After that you ignore the percentage and give yourself a raise for inflation every year.
Say you retire with $500,000. Four percent is $20,000, or about $1,667 a month. If prices rise 3% that year, you take $20,600 the next year, and so on, whatever the market did.
The rule doesn't mean "take 4% of whatever's left each year." The dollar amount is set once and then follows prices.
Where it came from
William Bengen, a financial planner in California, published the idea in the Journal of Financial Planning in October 1994. He took actual U.S. stock, bond and inflation figures going back to 1926 and tested every retirement starting year he had data for. With half the money in stocks and half in intermediate-term Treasury notes, a first-year withdrawal of 4%, adjusted for inflation afterward, never ran out in fewer than 33 years in those historical cases. He recommended holding 50% to 75% in stocks. Our comparison of 60/40 and 70/30 portfolios shows how mixes in that range have behaved.
Four years later, three finance professors at Trinity University in Texas (Philip Cooley, Carl Hubbard and Daniel Walz) ran a similar test and published it in the AAII Journal in February 1998. People call it the Trinity study. It reported how often portfolios survived at each withdrawal rate, using returns from 1926 to 1995. Over 30 years with inflation-adjusted withdrawals, a mix of 75% stocks and 25% bonds lasted in 98% of the periods tested at a 4% rate, 83% at a 5% rate, and 49% at a 7% rate.
Both studies looked backward at U.S. markets. Past returns don't guarantee future ones.
What the newer research says
Morningstar updates the number every year using forecasts instead of history. Its report published December 3, 2025 put the highest safe starting rate at 3.9% for someone retiring into a 30-year retirement, with a 90% chance of having money left at the end and 30% to 50% of the portfolio in stocks. The year before it was 3.7%. In 2021 it was 3.3%.
So the number moves, though it has stayed between 3.3% and 4.0% in every Morningstar report since 2021.
The same report found that retirees willing to let their spending move up and down with the market could start at nearly 6%. Bengen returned to the subject himself in a 2025 book, A Richer Retirement. None of the research above lands on 7% as a fixed, inflation-adjusted rate.
What is the 7% rule for retirement?
There's no single source for it, and that's the first thing to know. Search the phrase and you'll find it used in two different ways.
Usage one: withdraw 7% a year
This version treats 7% as a withdrawal rate. Take 7% of your savings in year one, then adjust for inflation, exactly like the 4% rule with a bigger number. On $500,000 that's $35,000 a year, or about $2,917 a month.
We haven't found a published study that shows a 7% inflation-adjusted withdrawal lasting 30 years with any reliability. In the Trinity study's table, a 7% rate lasted 30 years in 59% of the periods tested at best, and that was with everything in stocks.
Usage two: assume a 7% return
The other 7% is a growth assumption. Retirement calculators and savings projections often plug in 7% a year as a long-run return for a stock-heavy portfolio. That's a planning input for the years you're saving. It says nothing about how much you can take out.
The two get mixed together, and the reasoning sounds sensible: "If my money earns 7%, I can spend 7% and never touch the principal." It breaks down for two reasons.
- Inflation. If you spend all 7%, your balance never grows, so your income never grows. Twenty years of rising prices cut what that flat income buys.
- Averages hide bad years. A portfolio that averages 7% doesn't earn 7% each year. Withdrawals taken during a drop sell more shares at low prices, and those shares aren't there for the recovery. Our guide to sequence of returns risk shows how much the order matters.
4% rule vs. 7% rule: how long the money lasts
Here's the arithmetic on $500,000. We've kept the assumptions simple on purpose so you can check them with a calculator.
- You withdraw at the start of each year.
- The withdrawal rises with inflation every year.
- The portfolio earns the same return every year, shown as the amount above inflation.
- No taxes, fees or other income are counted.
| First-year withdrawal rate | First-year amount | Per month | Lasts, if returns only match inflation | Lasts, at 2% above inflation | Lasts, at 4% above inflation |
|---|---|---|---|---|---|
| 3% | $15,000 | $1,250 | About 33 years | More than 50 years | More than 50 years |
| 4% | $20,000 | $1,667 | 25 years | About 34 years | More than 50 years |
| 5% | $25,000 | $2,083 | 20 years | About 25 years | About 37 years |
| 6% | $30,000 | $2,500 | About 17 years | About 20 years | About 26 years |
| 7% | $35,000 | $2,917 | About 14 years | About 17 years | About 20 years |
Read the bottom row. Even with a steady 4% above inflation every single year, which no real portfolio delivers, a 7% withdrawal is gone in about 20 years. Retire at 62 and that's age 82.
Real markets are rougher than this table. Returns arrive in a jumble, and a few bad years early on shorten every figure in it. That's why the published research lands near 4%, well under the average return.
When might a higher rate be reasonable?
A rate above 4% isn't automatically reckless. It depends on how long the money has to last and what else is coming in.
- A shorter stretch. Someone who's 80 is planning for fewer years than someone who's 60. Morningstar's report says older retirees can reasonably spend well above its 3.9% base figure.
- A bridge. You might draw 6% or 7% for a few years while you wait to claim a bigger Social Security check, then drop to a much lower rate once it starts. Our retirement age guide shows what waiting adds.
- Flexible spending. If you'd cut back in a bad year, you can start higher. That's the "near 6%" finding.
What doesn't hold up is 7%, rising with inflation, for 30 years, on autopilot.
Where the 4% rule falls short
We'd treat 4% as a first estimate. It assumes a 30-year retirement, so retiring at 55 calls for a lower number. It ignores taxes, and every dollar from a traditional 401(k) or IRA is taxed as income.
It also ignores required minimum distributions. From age 73 (75 if you were born in 1960 or later), the IRS makes you withdraw a set share of traditional accounts each year. At 73 that's about 3.8% of the balance, and the share climbs as you age. You don't have to spend an RMD, though you do have to take it and pay the tax. Skip one and there's a missed RMD penalty. Our guide to required minimum distributions has the details.
How to use these rules on your own numbers
Start with what you spend in a year. Subtract Social Security and any pension. What's left is what savings has to cover.
Divide that gap by your total savings. If the answer is near 4% or below, you're in the range the research supports for a 30-year retirement. If it's 6% or 7%, the plan needs something else: more working years, a later Social Security claim, lower spending, or part-time income. Our retirement planning guide for every age goes through each of those.
Our retirement calculator runs this with your figures, and how much do I need to retire? works the same math backward from a spending target. For a worked case, see retiring at 62 with $400,000. You can check any adviser's record for free at Investor.gov.
Common questions
What is the 4% rule in simple terms?
Withdraw 4% of your savings in the first year of retirement, then raise that dollar amount each year by inflation. William Bengen's 1994 research found this lasted at least 30 years in every historical U.S. period he tested, going back to 1926. It's a guideline drawn from the past, and the future can differ.
Is the 7% rule safe for retirement?
For a 30-year retirement, the published research doesn't support it. Morningstar's estimate for new retirees, published December 3, 2025, is 3.9%. A 7% rate can work over a short period or as a temporary bridge.
How long will $500,000 last at 7%?
If you take $35,000 in year one and raise it with inflation, about 14 years if returns only match inflation and about 20 years if the portfolio earns a steady 4% above inflation. Real results depend on the order of good and bad years.
Does the 4% rule include Social Security?
No. It covers only what you take from your portfolio. Social Security and pensions come on top, which is why your withdrawal rate should be figured on the gap they leave.
Does the 4% rule still work in 2026?
It's close to current estimates. Morningstar's latest figure, published December 3, 2025, is 3.9% for a new retiree, and nearly 6% for someone willing to let spending vary. Treat any single number as a starting estimate and revisit it every year or two.
We base our guides on primary sources such as the IRS, the Department of Labor, and federal regulators. Read our editorial policy. Spot an error? Tell us.
