The 4% Rule (and Its Limits)

The 4% rule is a brilliant starting framework but a dangerous gospel — and knowing its limits matters as much as the rule itself. Its appeal: it converts the vague “how much can I spend?” into a concrete, inflationThe steady rise in prices that erodes money’s purchasing power.-adjusted number, and it elegantly links to the 25× corpus target. Its origin, though, is US historical data over a particular period — and several factorsTilting a portfolio toward traits that have historically paid. mean it can **break for India and the futureA binding agreement to buy or sell at a set price on a future date.*: (1) higher inflationThe steady rise in prices that erodes money’s purchasing power. in India strains a fixed real-withdrawal plan; (2) longer retirements (early retirement, rising longevity) than the 30-year basis make 4% riskier; (3) sequence-of-returns risk* (next lesson) — a bad-returns start can sink even a “4%” plan; and (4) futureA binding agreement to buy or sell at a set price on a future date. returns may be lower than the historical sample. So treat 4% as a conservative anchor, not a guarantee: many planners suggest a lower rate (~3–3.5%) for long or early retirements, or — better — a flexible withdrawal that adjusts down in bad years. The rule’s real value is the mental model (corpus ≈ 25× expenses; withdraw a small, sustainable %), not blind faith in the exact 4%.