The best-known number in retirement planning
Hardly any rule of thumb is quoted as often in forums, books and articles on financial independence as the 4 % rule. It promises a simple answer to a hard question: how much can I withdraw from my portfolio each year without running out of money? Its answer: 4 % of the starting capital in the first year, then raised by inflation each year. But where does the number come from, and how well does it fit investors in Germany?
The origin: US studies from the 1990s
The rule goes back to the US financial planner William Bengen, who in 1994 analysed historical US stock and bond market data from 1926 onwards. For every possible starting year he simulated how long a portfolio of US stocks and US government bonds would have lasted at different withdrawal rates. The result: with an inflation-adjusted starting withdrawal of just over 4 %, the money would not have run out before 30 years in any of the periods studied.
In 1998 three professors at Trinity University in Texas confirmed the result using a similar method. Since then people have referred to the “Trinity study”, and 4 % became a rule of thumb.
What the rule means in practice
- Withdrawal: from 500,000 € you may withdraw 20,000 € in the first year, about 1,667 € a month.
- Inflation: if prices rise by 2 %, you withdraw 20,400 € in year two, 20,808 € in year three and so on – regardless of how the portfolio performs.
- Capital required: the other way round, you need 25 times your annual withdrawal. If you need 24,000 € a year, you need 600,000 €.
What the rule does not say
As simple as the rule is, its limits matter just as much:
- It applies to 30 years. If you stop working at 45, you may need 45 or 50 years. For longer periods later analyses tended to arrive at rates between 3 and 3.5 %.
- It is based on US data. The US stock market was one of the most successful in the world in the 20th century. Studies using data from other countries often arrive at lower safe withdrawal rates.
- It ignores costs. The simulations use market returns. Fund and custody costs of 0.2 to 1 % a year noticeably lower the sustainable rate.
- It ignores German taxes. Flat-rate tax, solidarity surcharge and possibly church tax on the gain share of withdrawals are not included.
- It is not a guarantee. It describes what would have worked in the past. The future may turn out worse.
Calculating instead of a rule of thumb
The 4 % rule describes the worst historical case. In many periods there would even have been more money left at the end than at the start. Our Withdrawal Plan Calculator therefore works differently: you enter an expected average return, inflation and your tax situation and see how long your capital lasts. The calculator also shows the 4 % rule as a reference value.
An example: 500,000 € capital, 2,000 € withdrawal a month, 5 % return after costs, 2 % inflation. That corresponds to a starting withdrawal of 4.8 %. Without tax, the money lasts just over 32 years in the model. With a starting withdrawal of exactly 4 % (about 1,667 €), it would last more than 45 years under the same assumptions. With a more cautious return of 3 %, however, the duration at 2,000 € shrinks to just over 23 years – try it out.
Flexible withdrawals as a complement
In practice, few people stick rigidly to a rule. Withdrawing a little less in bad market years and a little more in good years improves the durability of a portfolio considerably. A cash reserve for two to three years also helps, because you then do not have to sell units at rock-bottom prices in a crash. More in the article Inflation and Sequence of Returns.
Conclusion
The 4 % rule is a useful first reference point: you need roughly 25 times your annual withdrawal. For robust planning in Germany, however, you should include costs, taxes, your actual time horizon and a cautious return. That is exactly what the Withdrawal Plan Calculator is for. How to work out your personal target for financial independence is explained in Calculating Financial Independence. No investment advice; as of 24 September 2026.