The 4% rule says: if you withdraw 4% of your investment portfolio in the first year and then take the same amount every year adjusted for inflation, on US historical data the money lasted at least 30 years. That gives a simple target: capital equals annual spending times 25, so UAH 25,000 a month requires UAH 7.5 million in today's prices. For someone in Ukraine it is wiser to plan for 3-3.5% (a multiple of 29-33) and to reduce the target with the state pension and flexible spending.
Oleksandr Suhak
16 min read
The 4% rule describes a way of taking money out of a portfolio, and it says nothing about returns. In your first year without work you take 4% of the portfolio's value. In every following year you take the same amount increased by last year's inflation, whatever the market has done. Meanwhile the portfolio stays invested: part in stocks, part in bonds.
A simple example. Capital of UAH 9,000,000. In the first year you withdraw 4%, which is UAH 360,000, or UAH 30,000 a month. Prices rise 10% over the year, so in year two you withdraw UAH 396,000, and in year three, after another 10% of inflation, UAH 435,600. If stocks have fallen in the meantime and the portfolio has shrunk to 7 million, you still withdraw UAH 435,600. This constant purchasing power of the payments is what makes the rule convenient for planning and, at the same time, vulnerable.
The rule leads to the savings target it is most often quoted for: if 4% of capital has to cover a year of spending, capital must be 25 times that spending (100 / 4 = 25). Hence the names "rule of 25" or "25 times annual expenses".
Three clarifications prevent the most common misreadings. First, the 4% is calculated on the starting amount and then indexed in money terms, which is a very different strategy from taking 4% of the current balance every year. Second, the rule is designed for 30 years, and by the end the portfolio may be close to zero, so it does not promise to preserve capital for heirs. Third, it ignores taxes, fees and pensions; more on that below.
In 1994 the American financial planner William Bengen published a study in the Journal of Financial Planning with a simple question: how much could a retiree withdraw each year so that the money would last under any historical scenario. He took US market data from 1926 and tested every year as a possible retirement date. The portfolio held large-company stocks and intermediate-term government bonds.
The worst start was in the mid-1960s, just before the market declines and high inflation of the 1970s. Even for that retiree, withdrawals of about 4% a year with indexation lasted 30 years, provided the portfolio held between half and three quarters in stocks. Bengen called this limit SAFEMAX, the maximum safe rate in the worst scenario in history.
In 1998 three professors at Trinity University (Cooley, Hubbard, Walz) repeated the calculation on 1926-1995 data and counted the share of successful 30-year periods for different rates and portfolio mixes. For 4% with indexation and a portfolio split evenly between stocks and bonds, about 95% of periods were successful. At 5-6% the share of failures rose sharply. The paper has been known as the Trinity study ever since, and 4% became a rule.
| Study | Data and approach | Rate |
|---|---|---|
| Bengen, 1994 | US from 1926, stocks and bonds, worst historical start | about 4% |
| Trinity study, 1998 | US 1926-1995, share of successful periods | 4% with about 95% success |
| Bengen, 2025 | seven asset classes, 55% stocks, 40% bonds, 5% cash | 4.7% |
| Morningstar, 2021-2025 | forward-looking return estimates, 90% success | 3.3% to 4.0%, 3.9% in December 2025 |
| Pfau, 2010 | 17 developed countries over 109 years | 4% safe in only 4 countries |
| Anarkulova and co-authors, 2025 | 38 developed countries since 1890, allowing for life expectancy | 2.26% for a 5% risk |
In 2025 Bengen published a book in which he added micro-cap and mid-cap stocks, international stocks and Treasury bills to the portfolio. Broader diversification raised the worst historical result to 4.7%. The author himself stresses that a retiree's main enemy is inflation: it damages a portfolio more than big market falls, because it forces you to withdraw ever more hryvnias, dollars or any other currency.
Morningstar analysts calculate the rate differently each year, using expected returns on stocks and bonds over the next 30 years. Their estimate has ranged from 3.3% in 2021 to 4.0% in 2023, and in the December 2025 report it is 3.9% for a portfolio with 30-50% in stocks and a 90% probability that the money does not run out. The gap between 3.3% and 4.0% looks small, yet for spending of UAH 300,000 a year it means capital of 9.1 million versus 7.5 million hryvnias.
Before calculating, decide which expenses the portfolio has to cover. Count your real monthly spending after you stop working; your current income is not the benchmark here. That means housing, food, medicine, transport, leisure, help for family. Some costs disappear (commuting, pension contributions), some grow (healthcare). The most reliable source for the figure is your own expense records for at least a few months.
| Monthly spending | Per year | 4% (× 25) | 3.5% (× 28.6) | 3% (× 33.3) |
|---|---|---|---|---|
| UAH 15,000 | 180,000 | 4,500,000 | 5,142,857 | 6,000,000 |
| UAH 25,000 | 300,000 | 7,500,000 | 8,571,429 | 10,000,000 |
| UAH 40,000 | 480,000 | 12,000,000 | 13,714,286 | 16,000,000 |
| UAH 60,000 | 720,000 | 18,000,000 | 20,571,429 | 24,000,000 |
The figures are in today's prices. If your target is 20 years away, the nominal amount will be several times larger, but your income and prices will grow too. That is why it is easier to plan in real terms: today's hryvnias and returns above inflation. How to move from nominal to real rates is explained in detail in the article on real return.
It helps to look at the rule from the other side: if the portfolio earns a fixed return above inflation every year, how many years will the money last at different withdrawal rates. The calculation is simplified, because real markets do not deliver the same return every year, but it shows the scale well.
| Withdrawal rate | 0% above inflation | 1% | 2% | 3% | 4% |
|---|---|---|---|---|---|
| 3% | 33 | 40 | 53 | over 100 | over 100 |
| 3.5% | 29 | 33 | 41 | 60 | over 100 |
| 4% | 25 | 29 | 34 | 44 | 83 |
| 5% | 20 | 22 | 25 | 30 | 37 |
Two things stand out. Even with zero return, 4% lasts 25 years, because 25 × 4% = 100%. And a one-point change in the rate matters more than it seems: with a 2% real return, a 3% rate lasts 53 years and 5% only 25. For someone who wants to stop working at 45 and live on capital for 40-50 years, the difference between these rows is decisive.
The average return tells you little about the fate of a portfolio you regularly withdraw from. What matters is the order in which good and bad years arrive. Specialists call this sequence of returns risk, and it is what produced the worst cases in Bengen's study.
The reason is simple: when the market has fallen and you keep withdrawing the same amount, you have to sell more fund units at a low price. Those units will no longer recover with the market. That is why the first 5-10 years after you stop working are the most dangerous period, and most of the protective strategies below target exactly that.
The twentieth century was exceptionally kind to American stocks and bonds. In 2010 researcher Wade Pfau tested the rule on data from 17 developed countries over 109 years: 4% with indexation proved safe in only four of them, and a half-and-half portfolio of a country's own stocks and bonds would have failed at some point in every one. The broadest study to date (Anarkulova and co-authors, 38 developed countries from 1890 to 2019) also accounts for the life expectancy of a 65-year-old couple. By their estimate, 4% carries roughly a 17% probability of running out of money before life ends, and for a 5% risk the rate drops to 2.26%. International diversification of stocks raises this limit a little.
The conclusion for a Ukrainian buying broad global funds: the American 4% is the upper end of an optimistic scenario, and it should not be treated as a guarantee.
The rule depends on indexing payments to inflation. In the US, in the worst years of the 1970s, inflation reached 11-13% a year. In Ukraine, according to the State Statistics Service, prices rose 24.9% in 2014, 43.3% in 2015 and 26.6% in 2022. In September 2026 inflation was 10% year on year. Each such year sharply increases the amount you must withdraw, and if it coincides with a market fall, the portfolio takes a double hit.
A large part of a Ukrainian's long-term portfolio usually sits in foreign currency instruments and global equity funds. Devaluation of the hryvnia then gives partial protection: capital in hryvnias grows along with prices. But the link is loose. The exchange rate and prices move at different times and speeds, so there are years when the hryvnia is stable, prices rise and the currency portfolio stands still in hryvnia terms. That is why a hryvnia portion (government bonds, deposits) is needed both for current payments and for balance.
Most American calculations ignore taxes. In Ukraine, investment profit from selling securities is taxed at 18% personal income tax plus 5% military levy, and dividends from foreign companies at 9% income tax plus the 5% levy. Income from government bonds (OVDP) is tax-free.
The longer you hold funds, the larger the profit share in the units and the heavier the tax on sale. So build taxes into the withdrawal rate from the start.
Military government bonds currently yield about 15.16% a year at auctions, tax-free, with inflation at 10%, which is roughly 4.7% above inflation. On paper this is even more than 4% requires. The problem is that this is the yield of one moment. Bonds mature in 1-3 years and new ones may pay less, and in years of price jumps hryvnia instruments have often lagged inflation. A portfolio made only of one government's hryvnia bonds depends on one economy and one currency, so over 30 years it is riskier than today's rate suggests.
The portfolio does not have to cover all spending. If you will receive a pension after 60, capital is needed only for the difference. A person with an average wage and 35 years of insurance record who retires in 2026 receives about UAH 6,119. Then, for spending of UAH 25,000 a month, instead of UAH 7.5 million you will need UAH 5,664,300 (18,881 × 12 × 25). You can estimate your own pension with the old-age pension calculator.
If you plan to stop working before pension age, calculate two stages: before the pension the capital covers all spending, after it only the difference. Also keep the insurance record in mind: years without official income add no record, and the pension may turn out smaller than in the example.
The strict 4% rule assumes you never cut the payment. In practice most people can trim optional spending in a bad year, and this raises the safe rate considerably. According to Morningstar, flexible methods allow you to start at nearly 6% instead of 3.9%. The best-known approaches:
To avoid selling stocks at the bottom, part of the capital equal to 2-3 years of spending is kept in short-term government bonds and on deposit. For spending of UAH 360,000 a year that is about UAH 1,080,000. In good years the reserve is topped up from fund gains; in bad years you live on it and wait for the market to recover. This reserve belongs to the portfolio itself, it is not saved on top of it, and it does not replace an emergency fund for unexpected costs.
Even part-time work in the first years after leaving a job greatly reduces sequence risk. Income of UAH 8,000 a month covers UAH 96,000 a year, which equals UAH 2.4 million of capital under the rule of 25. It is especially valuable in the first 5-10 years, when the portfolio is most vulnerable.
Take a target of UAH 6 million in today's prices: at a 3% rate it covers UAH 15,000 a month, at 4% UAH 20,000. You increase the monthly contribution with inflation and count the return above inflation.
| Return above inflation | 15 years | 20 years | 25 years | 30 years |
|---|---|---|---|---|
| 3% | UAH 26,435 | UAH 18,276 | UAH 13,453 | UAH 10,296 |
| 4% | UAH 24,381 | UAH 16,359 | UAH 11,670 | UAH 8,645 |
| 5% | UAH 22,448 | UAH 14,597 | UAH 10,075 | UAH 7,209 |
Time matters more than return: going from 15 to 30 years cuts the contribution by 2.5-3 times, while raising the return from 3% to 5% cuts it by only 15-30%. Enter your own figures in the compound interest calculator: type the rate as the return above inflation, and the result will be in today's hryvnias. How to split contributions between hryvnias, foreign currency and funds depending on the horizon is described in the article on the beginner's investment portfolio.
How to build savings for old age alongside the state pension and which instruments exist for this in Ukraine is covered in detail in the article on saving for retirement.
Checked against official sources on October 29, 2026. If a figure changes, we update the article and the «Updated» date changes automatically.
This material is for information only and is not individual investment or retirement advice. The calculations are illustrative: past returns do not guarantee future returns, and stocks and bonds can lose value. The safe withdrawal rate for your own situation may be lower.
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