A safe withdrawal rate is the share of a portfolio you can withdraw each year, indexed to inflation, with a high probability the money will not run out.
A safe withdrawal rate is the share of an investment portfolio you can withdraw in the first year, and then each year in the same amount adjusted for inflation, so that the money is highly likely to last the whole planned period, most often 30 years.
The best-known estimate is 4% on US historical data. The American planner William Bengen called the worst historical case SAFEMAX. Other researchers calculate the rate from expected returns or on data from many countries and arrive at anything from 2.3% to 4.7%, depending on assumptions: life expectancy, the share of stocks, diversification, the balance you want to leave to heirs.
The rate is lower the longer the period and the more rigidly you stick to a fixed payment. Flexible rules, such as cutting the payment after a market fall, allow a higher starting rate. Taxes and fees reduce the amount that actually reaches your pocket, so they are built into the rate in advance.
In detail, with examples: The 4% rule: how much you need to save to live off your investments
4% rule Sequence of returns risk Diversification
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Where 4% came from, a capital table for different spending levels, the risk of bad early years, adjustments for the hryvnia and taxes, flexible strategies and the monthly contribution.