Project your retirement savings from a current balance plus monthly contributions.
Future value = current balance compounded, plus the future value of a monthly contribution annuity, both growing at your assumed annual return.
The commonly cited "4% rule" for retirement withdrawals traces back to the 1998 Trinity Study, which tested rolling 30-year periods of historical US stock and bond returns from 1926-1995 and found that a 4% initial withdrawal, adjusted upward for inflation every year after, succeeded (didn't run out of money) in roughly 95% of those 30-year periods for a 50/50 stock-bond portfolio. Updated versions of the same study using data through more recent years show a broadly similar result — a 60/40 portfolio with 4% inflation-adjusted withdrawals still succeeds in the great majority of 30-year periods — which is why the rule has remained a durable starting point for retirement planning almost three decades later.
Two real limitations are worth knowing before treating 4% as a fixed rule rather than a starting estimate. First, the original study only tested 30-year retirement horizons — someone retiring earlier and needing 40-50 years of withdrawals needs a meaningfully lower safe withdrawal rate, with some research suggesting closer to 3.5% for a 40-year horizon. Second, sequence-of-returns risk means the order returns arrive in matters enormously: a market downturn in the first few years of retirement can permanently damage a portfolio's survival odds in a way that the same downturn arriving later in retirement would not, because early withdrawals during a down market lock in losses that a growing portfolio never gets the chance to recover from.
The 1998 Trinity Study, which analyzed rolling 30-year periods of historical US market returns (1926-1995) and found a 4% initial withdrawal rate, increased annually for inflation, succeeded in about 95% of those periods for a 50% stocks / 50% bonds portfolio. It's remained a widely cited starting benchmark since.
It remains a reasonable starting point — updated studies using more recent data show broadly similar success rates for a 30-year retirement — but it comes with real caveats: it was only tested for 30-year horizons, and some current research projecting lower future market returns suggests a somewhat lower rate may be more conservative going forward.
It's the risk that the order investment returns arrive in — not just their average — affects whether a retirement portfolio survives. A market crash in the first few years of retirement is far more damaging than the same crash arriving later, because withdrawals taken during a down market lock in losses a portfolio never gets the chance to recover from, even if the market later rebounds.
Not without adjustment — the original 4% figure was tested against 30-year retirement horizons. Someone retiring in their 30s or 40s may need their savings to last 50-60 years, and research suggests a meaningfully lower withdrawal rate (some estimates closer to 3.5% or below) is more appropriate for that much longer time horizon.