Understanding the 4 per cent rule: How much you can safely withdraw from your retirement corpus

What is the 4 per cent rule and why should you care?

The 4 per cent rule says you can withdraw 4 per cent of your total retirement corpus in the first year, then increase the amount for inflation each year.
For a middle-class family who has worked and saved with dreams of a peaceful retirement, this rule offers a comforting anchor: “How much can I spend without running out of money?”
It’s a guideline, not a guarantee.

Who introduced the 4 per cent rule and what is its origin?

The rule emerged from research by William P. Bengen in the 1990s, after studying historical U.S. stock and bond data. 
The so-called “Trinity Study” also popularised a version of this safe withdrawal rate concept. 
For a modest-income retiree, knowing this rule gives a sense of structure and hope for stability.

How exactly does the 4 per cent rule work in practice?

Imagine you retire with a corpus of ₹1 crore (or equivalent). Under the rule you’d withdraw 4 per cent in year one – i.e., ₹4 lakhs. Then each year you raise that amount by the inflation rate to maintain your purchasing power. 
The idea: your savings stay invested, growth helps, and you don’t deplete the principal too fast.
For middle-class folks used to planning budgets, this gives a simple formula: “Corpus × 4 % = Year 1 spending”.

What assumptions underpin the 4 per cent rule?

The assumptions include: a well-diversified portfolio (typically 50-60% equities, rest bonds) and a retirement horizon of about 30 years. 
Also, moderate inflation, and historical market return patterns.
For Indian middle-class readers: remember – markets, inflation, lifestyles can differ, so treat this as a guideline not a fixed law.

Is the 4 per cent rule safe in today’s world?

Good question. Many experts say the 4 per cent rule is still useful but needs caution. 
For example, low interest rates, longer life-expectancy, evolving expenses mean “safe” could be less than 4 per cent in some cases. 
So for someone in India retiring now, applying the rule only after adjusting for local realities (inflation, medical costs, legacy goals) is wise.

How do you estimate your required corpus using the 4 per cent rule?

Start with your annual expense estimate in retirement. If you want to spend ₹8 lakhs/year, then according to the rule you need approx ₹8 lakhs ÷ 4 % = ₹2 crore corpus (assuming the rule holds).
This kind of “reverse-calculation” gives peace: middle-class families can visualise the target number and plan savings accordingly.
Note: this ignores other income sources like pension, rent, etc., and ignores taxes or big one-off costs—so customise.

What are the advantages of using the 4 per cent rule?

• Simple to understand: easy for middle-class families.

• Gives a baseline: helps set expectations for retirement spending.

• Encourages discipline: you know how much you can withdraw without “going crazy”.

• Maintains inflation-adjusted lifestyle if you stick to the plan.
  All these matter when you want of stability, not wild swings, in your golden years.

What are the limitations and risks of the 4 per cent rule?

• It’s based on historical U.S. data; Indian markets/inflation may behave differently.

• It assumes a fixed withdrawal rate adjusted for inflation—but real life has surprises: medical bills, market crashes, long retirements.

• If you retire early (say age 50) the 30-year horizon may be too short.

• It may give a false sense of security: following rigidly without reviewing may lead to trouble.

How can you adapt the 4 per cent rule for an Indian middle-class retiree?

• Factor in Indian inflation (which may be higher than historical U.S.).

• Consider conservative withdrawal rate (maybe 3-3.5 %) if you expect a longer retirement or higher expenses.

• Keep some “buffer” for big one-time spends (home repairs, health).

• Revisit your corpus and withdrawal periodically – flexibility helps.

• Don’t ignore other income sources (pension, rental income) which reduce reliance on corpus alone.

Interactive Q&A – Your common questions

Q: Can I withdraw more than 4 per cent?
A: Possibly—but withdrawing more increases the risk of exhausting your corpus. Some recent research suggests higher rates may be safe under certain market conditions.

Q: What if my corpus earns less than expected?
A: Then the rule may break. You may need to reduce withdrawals, delay retirement, or invest more conservatively. Regular monitoring helps.

Q: Does this rule apply if I have a pension or other income?
A: If you already have other steady income, you might withdraw less from your invested corpus—so the 4 per cent rule becomes a flexible guideline, not a fixed target.

Q: Does the 4 per cent rule guarantee I won’t run out of money?
A: No guarantee. It’s a historically-tested guideline under specific assumptions. Real life has risks and uncertainties.

Why the 4 per cent rule matters emotionally for middle-class families

You’ve worked hard, saved diligently, supported your children’s education, managed household budgets. The thought of retirement triggers both relief and anxiety: “Will I have enough? Will my savings last?”
The 4 per cent rule gives a sense of control. It whispers: “Here’s a number you can plan with.” That emotional comfort—especially for middle-class households used to planning and budgeting—can relieve worry and bring purpose to retirement saving.

Real-life steps you can take today

• Estimate your expected annual expense in retirement (in today’s rupees).

• Multiply by 25 (i.e., reverse of 4 per cent) to approximate the target corpus. (E.g., ₹6 lakhs × 25 = ₹1.5 crore).

• Check how much you’ve already saved and how far you are from the target.

• Decide on a conservative withdrawal rate (4 per cent or slightly below).

• Monitor investments, inflation, lifestyle changes every year.

• Adjust if major unexpected expense, or if market/inflation conditions change.

📊 Table: Annual Withdrawal Amounts Based on 4 per cent Rule vs Other Rates

✍️ Notes & Interpretation (Write-up Section)

1. 4 per cent rule as baseline:
   The 4 per cent withdrawal column represents what most global retirement planners consider a “reasonably safe” starting withdrawal rate, assuming your corpus remains invested and continues to grow over time.

2. Why compare 3%, 4%, and 5%?

   • ✅ 3% = Conservative option (ideal for early retirees or those worried about long-term sustainability).

   • ⭐ 4% = Popular rule of thumb (balanced approach).

   • ⚠️ 5% = Aggressive (may risk depleting corpus early if returns are lower or inflation rises).

3. What ₹1 Crore vs ₹2 Crore vs ₹3 Crore actually mean for lifestyle:
   With ₹1 Crore corpus under the 4 per cent rule, yearly income is just ₹4 lakh (₹33,000/month approx).
   A ₹2 Crore corpus doubles that to ₹8 lakh (~₹66,000/month), while a ₹3 Crore corpus provides a more comfortable ₹12 lakh (~₹1 lakh/month).

4. Inflation adjustment reminder:
   These calculations are for Year 1 only. From Year 2 onward, withdrawals should be increased to match inflation—meaning your corpus must continue to generate returns higher than inflation for sustainability.

5. Ideal Indian context takeaway:
   With rising medical costs and longer life expectancy in India, many experts now recommend starting between 3–3.5% rather than exactly 4%, unless you have additional income sources such as pension, rental income, or annuities.

6. Psychological comfort:
   Seeing clear numbers helps retirees mentally visualise their required lifestyle corpus, making financial planning feel less abstract and more measurable.

📆 Monthly Withdrawal Table Based on Different Withdrawal Rates

💡 How this table changes perception (emotional insight for readers)

✔ When viewed annually, ₹8 lakh or ₹10 lakh may seem abstract.
✔ But when shown as ₹66,667/month or ₹83,333/month, it becomes a real-life salary replacement calculation.
✔ This helps retirees or soon-to-retire individuals better judge:
✅ Is ₹50,000/month enough for my current lifestyle?
✅ Do I need at least ₹1 lakh/month for medical security and comfort?
✅ If I want ₹1 lakh/month, I must target around ₹3 crore corpus (at 4%).

This emotional clarity often triggers more serious retirement planning among middle-class earners.

Final thoughts: Is the 4 per cent rule right for you?

For a middle-class Indian family, the 4 per cent rule is a useful starting point—a gentle guide, not a rigid law.
It provides structure, gives you a planning number, and offers emotional relief by turning “how much can I spend” into a formula.
But remember your unique life: expenses may rise, markets may wobble, health may change. Combine this rule with regular reviews, adaptability, and realistic expectations—and you’ll retire not just with money, but with peace of mind.

FAQs

Q1: Does the 4 per cent rule work in India given high inflation?
A1: Inflation in India can be higher than historical U.S. averages, so you may need to be more conservative (e.g., a withdrawal rate lower than 4 per cent) or target a larger corpus.

Q2: What if I retire early and expect my corpus to last 40-50 years?
A2: Then the 4 per cent rule may be too generous for your horizon. You might aim for 3-3.5 per cent withdrawal or plan for additional income sources.

Q3: Can I increase my withdrawal later if markets do well?
A3: Yes, you can adopt a flexible strategy—adjust upward when markets support it, reduce in lean years. The 4 per cent rule is just a baseline.

Q4: What if I get a pension or rental income?
A4: Then your required corpus reduces. You might withdraw less from savings and rely on combined incomes, improving safety.

Q5: What happens if I withdraw exactly 4 per cent every year without adjusting?
A5: If you don’t adjust for inflation, your real purchasing power falls. The rule assumes you increase the withdrawal amount for inflation each year.

Q6: Does the rule consider medical emergencies or big one-time costs?
A6: Not explicitly. That’s a limitation. You should keep an emergency buffer aside and reassess if big costs arise.

Q7: Is the 4 per cent rule outdated?
A7: It’s still useful but many experts say it needs adaptation due to changed market conditions.