Building a portfolio
Safe withdrawal rate
Also called SWR or The 4% rule
The percentage of a portfolio you can take each year with a high chance of it lasting your lifetime.
How it works
The best-known version is the 4% rule: withdraw 4% of the starting balance in year one, then increase that amount with inflation each year afterwards.
It came from historical testing on a specific portfolio, over a specific thirty-year horizon, in one country. It is a useful reference point and not a law of nature.
Where it misleads people
The rule assumes a fixed horizon, a specific asset mix and no fees. Longer retirements, higher costs, or a different starting valuation environment all change the answer, usually downward.
Related terms
- Sequence-of-returns riskThe risk that poor returns early in retirement do lasting damage, even if average returns are fine.
- InflationThe rate at which prices rise, which means the rate at which each pound or dollar buys less.
- Glide pathA plan to shift gradually from higher-risk to lower-risk assets as a target date approaches.
- Real returnReturn after subtracting inflation — the only measure of whether you got richer.
Mentioned in
More in Building a portfolio
- Risk tolerance
- Strategic asset allocation
- Rebalancing band
- Tactical asset allocation
- Rebalancing
- Asset allocation
- Modern portfolio theory
- Concentration risk
All 20 Building a portfolio terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.