Rule of 25 vs. the 4% rule: where the 25 comes from
Twenty-five is simply 1 ÷ 0.04. The 4% rule tells a retiree how much to take out: 4% of the portfolio in the first year, then the same dollar amount raised with inflation. The rule of 25 runs that arithmetic backward for a saver: how much to build before the first withdrawal. They are one idea seen from the two sides of the retirement date.
The 4% comes from studies of US market history. William Bengen’s 1994 paper found that, with half stocks and half intermediate-term Treasuries, a 4% first-year withdrawal never emptied a portfolio in under 33 years in the periods he examined, while 4.25% could fail in 28. The 1998 Trinity study found that over 30-year periods from 1926 to 1995, a 4% withdrawal rising with inflation lasted in 95%–98% of periods with half to all stocks.
Because the multiple is just the inverse of a safe withdrawal rate, it moves with the rate you choose: 1 ÷ 3.5% is about 28.6, 1 ÷ 3% is about 33.3, and 1 ÷ 5% is 20. The table below sets those multiples against what the two studies found.
How to use the rule of 25
The rule takes a minute, and its accuracy depends almost entirely on the spending figure you feed it; the FI number page covers what belongs in that figure. Stated monthly, it becomes the rule of 300: monthly spending × 300 gives the same target, because 12 × 25 = 300.
The same arithmetic prices everyday decisions. Every $1 of yearly spending needs $25 invested, so every $100 a month of recurring cost needs about $30,000. That is why lifestyle inflation is so expensive for savers, and why a new subscription or car payment deserves more scrutiny than a one-off purchase of the same amount. The steps:
- Find the yearly spending your portfolio must fund, at today’s prices, including the income tax on your withdrawals.
- Subtract income that will arrive every year, such as a pension or net rent. Social Security counts only from the year it starts.
- Multiply what is left by 25. The result is your target at a 4% withdrawal rate.
- Divide your current investments by the target to see how far along you are, and repeat the check each year.
What the rule of 25 assumes
The rule of 25 inherits the test conditions of the research behind it, and the further your plan drifts from them, the less the 25 means. None is unreasonable for a conventional retirement that starts in your mid-60s, but several are a stretch for someone stopping work at 40, or for a portfolio held mostly in cash or bonds. Check each one against your own plan before relying on the result:
- A retirement of about 30 years. Both studies judged success over periods of that length.
- A first-year withdrawal that then rises with consumer prices every year, whatever markets do. The CPI-U rose 3.4% in the 12 months to August 2026.
- A portfolio of roughly 50%–75% stocks, with the rest in bonds.
- US market returns from 1926 onward, which is one country’s history.
- No taxes, fund fees or trading costs. The Trinity authors state that they did not adjust for taxes or transaction costs.
When to aim above or below 25 times
Retiring early is the main reason to aim higher. Someone stopping work at 45 may need the money to last 45 years or more, well past the 30-year window the rule was built on. In Bengen’s data, first-year withdrawals of 3% to about 3.5% lasted at least 50 years from every starting point, which is why some early retirees use 28 to 33 times spending instead of 25.
Fees push the same way. A fund or adviser charging 1% a year takes it from the same portfolio the withdrawals come from, so the investments must earn more to keep up. And a poor market in the first years of retirement does outsized damage, because withdrawals continue while prices are low; that is sequence of returns risk.
The rule can also be stricter than you need. Someone willing to trim spending after bad years, as dynamic spending rules do, or who expects part-time income in the early years, as in Barista FIRE, may stop work with less than 25 times. So may a retiree in their late 60s with a shorter horizon and Social Security already paying.
Illustrative numbers
The rule of 25 for a couple spending $90,000 a year
- Annual spending from the portfolio
- Yearly spending, including tax on withdrawals, minus pensions and other reliable income
- 25
- 1 ÷ 4%, the first-year withdrawal rate the rule assumes
For a different withdrawal rate, multiply by 1 ÷ that rate, such as about 28.6 at 3.5%.
Yearly spending, including tax$90,000
Inflation-adjusted pension from retirement−$18,000
Spending the portfolio must cover$72,000
Rule of 25 target ($72,000 × 25)$1,800,000
First-year withdrawal (4% of $1,800,000)$72,000
Second-year withdrawal after 3% inflation$74,160
The couple needs about $1.8 million invested. Under the rule, withdrawals then follow prices rather than the balance: year two’s rises to $74,160 whether the portfolio grew or fell, so the actual withdrawal rate drifts from 4% every year.
At a glance
Multiples of spending and what the classic studies found (Bengen’s figures use a half-stock, half-Treasury mix)
| Multiple of spending | First-year withdrawal | Target for $50,000 of spending | What history showed |
|---|---|---|---|
| 20× | 5% | $1,000,000 | Trinity: 76%–85% of 30-year periods succeeded with 50%–100% stocks; Bengen: some late-1960s and early-1970s starts lasted only about 20 years |
| 25× | 4% | $1,250,000 | Trinity: 95%–98% succeeded over 30 years; Bengen: no failure before 33 years |
| About 28.6× | 3.5% | $1,428,571 | Bengen: lasted at least 50 years from every start |
| About 33.3× | 3% | $1,666,667 | Trinity: 100% over 30 years with 50%–100% stocks; Bengen: at least 50 years |
Put it in your plan
Rule of 25 in MoneyWhatIf
MoneyWhatIf lets you test the multiple rather than trust it. A life milestone can mark the first year net worth reaches a multiple of annual spending, such as 25, measured on a recent three-year average of spending, and a retirement date can follow that milestone. Plan Resilience then reruns the plan across 100, 300 or 500 reshuffled historical market paths to show how often it funds every year’s spending, and the Wellness scorecard reports your average withdrawal rate against 4% and 6% planning marks.
Common questions
Rule of 25 FAQs
Is the rule of 25 based on income or expenses?
Expenses. Income matters only because it decides how much you can save. A household earning $250,000 but spending $60,000 needs about $1.5 million under the rule, while one earning $120,000 and spending $80,000 needs $2 million. Cutting spending therefore helps from both directions, a point the savings rate page works through.
How long will 25 times your expenses last?
In the US history the studies tested, usually 30 years or more and often far longer, but not forever. In Bengen’s 1994 tests a 4% first-year withdrawal never ran out in under 33 years, and in most periods it lasted 50 years or more. In the Trinity study it lasted the full 30 years in 95%–98% of periods with half to all stocks. Your result depends on the markets you retire into, your fees and whether spending bends in bad years.
Should I multiply spending before or after tax?
Use spending plus the tax your withdrawals will cost. Withdrawals from a 401(k) or traditional IRA are taxed as ordinary income, qualified Roth withdrawals are tax-free, and brokerage sales are taxed only on gains. A saver with mostly pre-tax money needs a bigger target than one with the same spending in Roth accounts, and the order you draw from accounts changes the bill; see tax-efficient withdrawals.
Does the rule of 25 include Social Security?
Not automatically. Subtract your expected Social Security benefit from spending, but only for the years it pays. Benefits can start at 62, full retirement age is 67 for anyone born in 1960 or later, and waiting earns credits up to 70. If benefits begin ten years after you stop working, you need the full withdrawal until then, so many planners pair a smaller long-run target with a separate bridge fund.