What is the 4% rule — and how long could a retirement pot last?
The 4% rule is a drawdown guideline from a 1994 US study: withdraw 4% of your pot in the first year of retirement, adjust that amount for inflation each year after, and in historical markets the money survived at least 30 years.
Flipped around, it produces the most-quoted retirement target in finance: a pot of roughly 25 times the annual income you want.
What the rule actually says
A financial planner named William Bengen tested every 30-year retirement in US market history and asked: what starting withdrawal rate never ran out? The answer was about 4% — first year's withdrawal set at 4% of the pot, then the rand amount (not the percentage) growing with inflation every year.
It's a historical finding about one country's markets over particular decades — not a law of nature. Its value is as a starting point with actual evidence behind it.
The 25× flip
If 4% of the pot must fund a year, the pot must be 25 times a year. That single multiplication is how the rule is mostly used:
- R300,000 a year (R25,000 a month) → a pot of about R7.5 million
- R600,000 a year (R50,000 a month) → about R15 million
- R1.2 million a year (R100,000 a month) → about R30 million
The South African caveats
- A living annuity must draw between 2.5% and 17.5% a year — the 4% rule fits comfortably inside the band, but the band is a legal rail, not a recommendation
- South African inflation has generally run higher than the US assumptions behind the study — the same rule carries more risk here
- Fees compound against the pot exactly as returns compound for it
- Retiring early means funding more than 30 years — the study only promises what it tested
What moves the answer
Three levers dominate: the return the pot earns, the inflation it must outpace, and — the quiet one — flexibility. In the historical data, retirees who could cut spending in bad market years rescued portfolios that fixed withdrawals would have destroyed.
A guideline's proper job
The 4% rule can't plan a retirement — it doesn't know your health, your dependants, your other income, or the decade you'll retire into. What it does brilliantly is scale: it turns "am I on track?" from a feeling into a number you can check against your own savings today.
Terms used on this page
- living annuity
- A retirement income product where the pot stays invested and you choose a yearly drawdown between 2.5% and 17.5%. The income isn't guaranteed — the pot can run out.
- drawdown
- The share of a retirement pot taken as income each year — and, in markets, the drop from a peak before recovery. Both uses matter in retirement.
- real return
- Growth after inflation — the increase in what your money can actually buy, not just the number on the statement.
Reviewed July 2026