Retire Early and Rich: How to Calculate Your Safe Withdrawal Rate

Do you want to be financially independent or retire early? In this article, you will learn everything there is about the safe withdrawal rate for early retirement.

The basis for understanding how to retire early is to explain the safe withdrawal rate (SWR). It is one of the fundamentals of Financial Independence and Retire Early (FIRE).

Most of the conclusions in the article are based on the data and research done by others. I’ve linked to sources, so you can go through them for additional information where you may need that.

What Is The Safe Withdrawal Rate?

The Safe Withdrawal Rate (SWR) is used to determine how much money you can withdraw from your accounts yearly and still have a high probability of not running out of money. This means having enough money to live a comfortable life while still having enough for the rest of your life.

Important note: the safe withdrawal rate is corrected for inflation.

The Safe Withdrawal Rate prevents the worst-case scenario from happening by only taking out a small portion of your portfolio each year. If we turn it around, we can use the SWR to calculate how much money we need to retire.

The 4% Safe Withdrawal Rate

Most people planning for Financial Independence and Retiring Early plan with the 4% SWR. The 4% SWR aims to enable you to withdraw 4% from your portfolio every year while still sustaining yourself. The simple calculation would be saving 25x your annual spending in a lump sum.

How Did They Arrive At 4%?

Now that we’ve covered the safe withdrawal rate, it is interesting to see how they calculated the 4%. It is not a random number. There are fundamental research and many calculations behind the 4% safe withdrawal rate.

The Famous Trinity Study

The Trinity Study is a study on retirement planning done in 1998, based on Bengen’s research (1994). The Trinity Study was also called Retirement Spending: Choosing a Sustainable Withdrawal Rate.

The goal of the Trinity Study is to determine the safe withdrawal rate for retirement. Or: how much money can you safely withdraw from your retirement portfolio each year? Without running out of money, of course.

The Trinity Study tries to measure when the portfolio you have is successful – meaning that you have enough money for your retirement. With the safe withdrawal rate, you can determine how risky your portfolio and your retirement strategy is.

The Trinity Study concludes that a 4% SWR (adjusted for inflation) is recommended for a 30-year retirement. Also, this is the SWR that is widely adopted around the FIRE community. It is also referred to as the 4% Rule or the Rule of 25.

What About The Recent Crises?

You are probably wondering whether or not the 4% SWR is also holding up for recent retirees. The 2008 crash example still scares a lot of us, but there is no need to!

Kitces published an article in which he takes 2000 as a starting year for our hypothetical retirement. It would be just before the 2000 internet crash and the 2008 financial crisis.

As you can see from Kitces’ article, you can conclude that it is rare to end up with less than the starting lump sum. 90% of (early) retirees end up with more lump sum than they started with. 

After 1929, only four hypothetical scenarios ended up with less than the original amount. To make it even more mind-blowing: over 2/3rd have more than double starting capital left after 30 years of retirement.

In short:

Many people say that the economy will be different in the upcoming decades; the 4% rule will not hold up. While there are no guarantees based on historical returns, the Trinity Study found that:

  • Over 90% of retirees end up with more than their starting capital.
  • Over 67% of retirees end up with more than double their starting capital.

What About A Longer Retirement?

We can conclude that the 4% safe withdrawal rate is safe for retirement. You are probably here because you want to retire early. So, is the 4% rule safe for early retirement?

When you retire in your 30s or 40s, you hopefully need your retirement amounts for longer than the 30 years mentioned in the Trinity Study.

While retirement horizon is important for the safe withdrawal rate, it’s not as crucial as you may think.

Kitces mentions that an increasing time horizon from 30 to 45 years reduces the SWR from 4.1% to 3.5%. He also states that, given the available data, the SWR does not decline below this 3.5%. If your time horizon extends beyond 45 years, the 3.5% will hold.

So 3.5% SWR is the bottom, independent of how many years you expect to retire. He also mentions that there can be an early 1-2 decade(s) of low returns and recovery of the portfolio for this SWR later on.

What About Asset Allocation?

Now the last part, how should you distribute your portfolio regarding stocks or bonds? Stocks should give you your high returns, 7% annually on average, to be exact. Well, if you compare small-cap, mid-cap, and large-cap stocks, returns are great. Bonds should balance the portfolio and give you more certainty.

According to Bengen, your portfolio should consist of 50-60% stocks and 40-50% bonds if your retirement horizon is 30 years. If your retirement horizon exceeds 45 years, 60-65% investing in stocks and 35-40% in bonds is advised.

Since the bond yields are currently at all-time lows, I’m choosing a more stock-oriented approach. I currently have 100% of my investments in stocks. I am young, and it wouldn’t be the end of the world if I need to go back to work.

With the stock-based approach, you have a higher risk and higher probability of both increases and decreases in your retirement portfolio. If you’re willing to take the risk and live with the consequences, go for it!

What About Other Safe Withdrawal Rates?

The majority of the article goes into the 4% safe withdrawal rate for early retirement. What about different withdrawal rates?

It can be tempting to take a higher withdrawal rate since that means you can save less for retirement. For example, if you want to spend $20,000 yearly with the 4% SWR, you need to save $500,000 ($20,000 / 0.04). If you want to spend $20,000 with a 5% SWR, you need to save $400,000. That is a difference of $100,000 just by adjusting the safe withdrawal rate.

What is the risk with a higher SWR? The risk is that you run out of money later in your (early) retirement. The higher your safe withdrawal rate, the higher the risk of running out of money later.

When you choose a lower safe withdrawal rate, for example, 3.5%, you need to save $570,000. The risk of running out of money decreases with a lower SWR because your investment return is higher than the amount you withdraw yearly.

If you are risk-averse or want to leave a nest egg behind, you may want to consider a lower safe withdrawal rate.


When you are taking the comfortable way and want to be sure that you are covered for life, you can take the 3.5% SWR. If you are certain about the economic situation, you can also choose the 4% SWR. It’s up to you!

When determining your Safe Withdrawal Rate, definitely take into account your time horizon, asset allocation, and recent market developments.

What is your preferred Safe Withdrawal Rate?

The article was published and syndicated by Radical FIRE.