What is the 4 percent rule?

The 4 Percent Rule outlines how much you can withdraw from your investments to cover your expenses during retirement. Using the 4 Percent Rule for your withdrawal rate is common advice from those in the FIRE community. Understanding the math behind the 4 percent rule is important for those starting their FIRE journey.

What is the 4% rule for a fire investor?

4. Invest in a diversified portfolio. The 4% rule was calculated using only U.S. assets. Vanguard believes investing in a diversified portfolio increases your chances of success regardless of your anticipated retirement horizon or financial goal. In our calculations, we assumed the FIRE investor’s portfolio contained only U.S. stocks and bonds.

Does the 4% rule affect a fire investor's success rate?

It’s important to note that the 4% rule didn’t factor investment fees into estimated returns, which also affects its likelihood of success. If we reevaluate a FIRE investor’s 36% chance of success by applying a 0.2% expense ratio to their portfolio, their estimated success rate drops to less than 28%.