The 4% Rule Explained
The 4% rule says you can withdraw 4% of your retirement portfolio in the first year of retirement, then adjust for inflation each year after, and your money should last at least 30 years. It comes from the 1994 Trinity Study, which tested this withdrawal rate against every 30-year period in US stock market history from 1926 to 1992.
If you retire with $1,000,000, your first-year withdrawal is $40,000—or $3,333/month. Year two, if inflation is 3%, you withdraw $41,200. The portfolio continues growing on the remaining balance, and historically the 4% rate survived 95% of all 30-year windows.
The flip side: to figure out your target number, multiply your desired annual income by 25. Need $60,000/year? You need $1,500,000. Need $100,000/year? That's $2,500,000. This is the fastest way to set your retirement savings goal.
How Much You Need by Age
| Current Age | Monthly Needed | Total at 65 | Monthly Retirement Income |
|---|---|---|---|
| 30 (35 years) | $550/mo | $1,100,000 | $3,667/mo |
| 40 (25 years) | $1,250/mo | $1,000,000 | $3,333/mo |
| 50 (15 years) | $2,900/mo | $900,000 | $3,000/mo |
| 60 (5 years) | $8,700/mo | $600,000 | $2,000/mo |
Assumes 7% average annual return, starting from $0 savings. Starting at 30 gives you 35 years of compounding, which is why $550/month gets you to $1.1 million. At 50, you need $2,900/month for a smaller total because you only have 15 years of growth. Every decade of delay roughly doubles the monthly savings required.
401(k) vs IRA vs Brokerage: Where to Save
| Account | 2025 Limit | Tax Treatment | Best For |
|---|---|---|---|
| 401(k) / 403(b) | $23,500 | Pre-tax (Traditional) or post-tax (Roth) | Employer match = free money. Max this first. |
| Traditional IRA | $7,000 | Tax-deductible now, taxed on withdrawal | High earners who want a tax break today |
| Roth IRA | $7,000 | After-tax now, tax-free withdrawals | Younger earners expecting higher future income |
| Taxable Brokerage | No limit | Capital gains tax on profits | After maxing tax-advantaged accounts |
The order: (1) contribute enough to your 401(k) to get the full employer match, (2) max out a Roth IRA, (3) go back and max out the 401(k), (4) overflow into a taxable brokerage account. This order maximizes tax advantages and employer free money.
Catch-Up Contributions After 50
Once you turn 50, the IRS lets you contribute extra to retirement accounts above the standard limits. For 401(k) plans, the catch-up amount is $7,500/year on top of the $23,500 base—a total of $31,000/year. For IRAs, you can add an extra $1,000, bringing the total to $8,000/year.
Starting at age 50 with $500,000 saved, maxing out a 401(k) at $31,000/year plus a Roth IRA at $8,000/year ($39,000 total, or $3,250/month) at 7% returns gives you roughly $1.65 million by 65. That's $5,500/month under the 4% rule—a comfortable retirement even if you started late.
For ages 60–63, the SECURE 2.0 Act introduced an even higher catch-up: $11,250/year for 401(k) plans (total $34,750). If you're in that window, take full advantage.
To see how your monthly contributions grow with compound interest over time, use the compound interest calculator. For planning specific savings milestones along the way, try the savings goal calculator. To convert your hourly wage into annual salary for retirement planning, check the hourly to salary calculator.