What Is the 4% Rule? How to Calculate Your FIRE Number
The 4% rule in plain language: where it comes from, how to calculate your FIRE number, its honest limitations, and what to watch for when applying it outside the US.
If you've read anything about financial independence or FIRE (Financial Independence, Retire Early), you've seen the "4% rule." It's the single most-cited rule of thumb in the FIRE movement, and it's the foundation FireFree uses to forecast your financial independence date. Here's what it actually says — including what it can't do.
What is the 4% rule?
In one sentence: withdraw 4% of your portfolio in your first year of retirement, adjust for inflation each year after, and your money has a very high chance of lasting 30 years.
The rule came from William Bengen, a US financial adviser, who published it in 1994 after running historical US market data through every 30-year retirement window he could find. The 1998 Trinity Study (Cooley, Hubbard and Walz) back-tested the same idea across stock/bond mixes and got results close enough to popularise it — which is why the Trinity Study usually gets the credit, and why Bengen usually doesn't.
How do I calculate my FIRE number?
Flip the 4% rule around and you get your "FIRE number" — the portfolio size at which work becomes optional:
FIRE number = annual spending × 25
Why 25? Because 1 ÷ 4% = 25. For example:
- Spending $3,000/month → $36,000/year → FIRE number = $900,000
- Spending $5,000/month → $60,000/year → FIRE number = $1,500,000
Notice the number depends only on your spending, not your income. That's why the FIRE community says a dollar saved is more powerful than a dollar earned: every $100/month you permanently cut removes $30,000 from your target.
The honest limitations
The 4% rule is a great starting point, not a guarantee:
- It's based on historical US market returns. Other markets behave similarly over long horizons, but not identically.
- It assumes a 30-year retirement. Retire at 40 and plan to live to 90, and you're looking at 50 years. The FIRE community's usual answer to that is 3.5% or lower.
- It ignores sequence-of-returns risk. A deep bear market in your first retirement years hurts far more than the averages suggest, because you're selling into it.
- It ignores state pensions. Whatever public retirement income you'll receive later reduces the gap your own portfolio has to cover — but the years before it kicks in are all on you.
How should I actually use it?
Treat it as a navigation starting point: use spending × 25 to get a rough target, adjust the withdrawal rate for your age and risk tolerance, and revisit it regularly.
That's exactly why we built FireFree: enter your income, expenses, and assets, and it draws your asset curve and financial independence date using the 4% rule (the withdrawal rate is adjustable) plus inflation — no spreadsheets, no bank account linking.
Want to feel the power of compounding first? Try the free Waiting Cost Calculator: it uses 23 years of real 0050 ETF returns to show what starting one year later actually costs.