How Much to Withdraw From Your Capital Without Running Out

Where does the "4% rule" come from?

In 1994 a Californian financial planner, William Bengen, published a study in the Journal of Financial Planning based on historical US market data from 1926. The question was simple: how much can a retiree withdraw each year without running out of money?

The method: in the first year you withdraw a percentage of the starting capital; from then on you withdraw the same amount, increased each year in line with inflation. With a portfolio half in US shares and half in medium-term US government bonds, an initial withdrawal of 4% never exhausted the capital in less than 33 years, in any historical period. At 5%, anyone who retired between the late 1960s and the early 1970s would have run out of money after about 20 years.

In 1998 three professors at Trinity University (Cooley, Hubbard and Walz) reached similar conclusions with US shares and corporate bonds from 1926 to 1995. Since then 4% has become a "rule", but its assumptions matter as much as the number.

Myth 1: "The 4% rule holds everywhere"

The rule comes from the history of a single country, the United States, which had one of the best stock markets in the world in the twentieth century. In 2010 Wade Pfau repeated the same calculation for 17 developed countries, with data from 1900 to 2008 and 30-year retirements starting between 1900 and 1979.

The result: 4% would have held in every period in only 4 countries out of 17 (Canada, Sweden, Denmark and the United States). In Italy it would have exhausted the capital in 62.5% of cases, and the maximum safe withdrawal in the worst period (those who retired in 1944) would have been 1.56%. The calculation is generous, too: it assumes no costs and a hindsight choice of the best mix of shares, bonds and cash.

Italian history includes two wars and the inflation of the 1940s, and today a portfolio does not invest only in Italian securities. But 4% remains the result of one country and one period, not a law of nature.

Myth 2: "The 4% is net of everything"

No. Bengen assumed tax-deferred accounts, so no tax on gains; the Trinity study states that it ignores both taxes and transaction costs. In Italy, by contrast, the return on invested capital bears:

• the 26% tax on financial income (Decree-Law 66/2014, art. 3), which falls to 12.5% on interest from government bonds;
• stamp duty of 0.2% a year on the value of securities accounts, investment funds and investment policies (Presidential Decree 642/1972, Tariff, art. 13, paragraph 2-ter);
• the costs of the products and of the service, stated in each product's information documents.

Let us run an example, on our own assumptions rather than a forecast: a portfolio that returns 4% gross a year, with 1% costs, drops to 3%. Taxing the gain at 26% leaves 2.22%; taking off stamp duty brings it to 2.02%. With 2% inflation, the net real return is about zero. The calculation is simplified (tax is paid when the gain is realised, and it is lower on government bonds), but it shows the order of magnitude.

Costs alone shift the result. Pfau reports that, with annual costs of 1.6% on equity funds and 1.2% on bond funds, the maximum safe withdrawal Bengen calculated on US data falls from 4.15% to 3.49%.

How many years does the money need to last?

The 4% rule is calibrated on 30 years. For someone retiring at 65, more are often needed. The mortality tables of ISTAT, Italy's national statistics institute, for 2025 say that at 65 a man has on average 20 years ahead of him and a woman 22.8. The average is misleading, though: a good share of people live much longer.

We calculated the probabilities from the survivors column of the ISTAT tables (2025 estimates); those for the couple assume the two lifespans are independent. These are "period" tables: they use today's mortality, so if longevity keeps rising they underestimate the years to be funded.

For capital that has to support two people, the prudent horizon is not average life expectancy but age 90-95 for the longer-lived spouse.

Myth 3: "Withdrawing the same amount every year is enough"

A fixed withdrawal in euros loses purchasing power every year. With 2% inflation, the European Central Bank's target, €12,000 withdrawn twenty years from now will be worth €8,076 in today's money: a third less. To buy in twenty years what €12,000 buys today you will need €17,831.

According to ISTAT, in December 2025 the price index for blue- and white-collar households (FOI) was 21.5% higher than its 2015 average. And some items that weigh more after 65 rise faster than average: in 2025 the prices of health services and health spending went up by 2.8%, against 1.7% for the overall harmonised index.

That is why withdrawal calculations, Bengen's included, work in real terms: the amount withdrawn grows with inflation. We explain how inflation erodes savings in everyday life in Inflation: how it touches our everyday life; you can measure the effect on your own amounts with our Inflation simulator.

How many years does capital last at different withdrawal rates?

We calculated this table ourselves. It shows for how many whole years you can withdraw the starting amount, adjusted each year for inflation, depending on two numbers: the percentage withdrawn in the first year and the net real return, that is, what is left after costs, tax, stamp duty and inflation.

Method: a withdrawal constant in real terms taken at the end of each year, a constant real return compounded annually, and a count of the years in which the withdrawal is covered in full. It is the same logic as our saving and drawing down simulator. With a real return equal to the withdrawal (3% and 3%), the return pays for the withdrawal and the capital stays intact.

Two useful readings. With a zero real return, the years are simply 100 divided by the withdrawal rate: 4% lasts 25 years. And between a 1% and a 3% return, the life of a 4% withdrawal goes from 28 to 46 years: that is why costs and tax, which move exactly that number, matter so much. Past returns do not guarantee future ones, and no market returns the same amount every year.

An example on €300,000

A couple aged 65 has €300,000 invested, on top of the state pension. They want to supplement their income with a withdrawal raised each year in line with inflation, and they estimate a net real return of 1%.

1. At 4%, €12,000 a year (€1,000 a month), the capital lasts 28 years, to age 93.
2. At 5%, €15,000 a year, it lasts 22 years, to age 87. According to the ISTAT tables there is about an 85% chance that at least one of the two is still alive at 85.
3. At 3%, €9,000 a year, it lasts 40 years: past 100.

The step from €1,000 to €1,250 a month looks small, but it takes away six years of cover, in exactly the years when one of the two has a good chance of still being alive.

You can redo the sums with our saving and drawing down simulator: enter 65 as the starting age, 0 years of accumulation, €300,000 of capital and €12,000 of annual spending. The simulator works in nominal euros and does not consider tax and costs, so the return must be entered already net: with a 3% net return and 2% inflation, the capital runs out at 95.

Why does the order of returns matter?

While you are accumulating, the order of returns does not change the final result. When you are withdrawing, it does: a loss in the early years forces you to sell units when they are worth little, and those units no longer take part in the recovery. This is called sequence-of-returns risk.

An example with our own numbers. Two retirees start with €300,000 and withdraw €12,000 a year in real terms. In the first ten years they have the same real returns, three years at -10% and seven at +7%, but in opposite order:

Without withdrawals the order does not matter: both reach €351,184. With withdrawals, the one who meets the losses first has almost €48,000 less after ten years and seven fewer years of withdrawals. The first years of retirement are therefore the most delicate, also because of impulsive reactions: we discuss this in How to read a portfolio without letting fear take over.

How do you reduce the risk of running out of capital?

There is no single solution, but three measures recur in every study on the subject:

1. A cash reserve of 2-3 years of withdrawals. At €12,000 a year that means €24,000-36,000 kept in low-risk instruments. In bad years you draw on the reserve instead of selling units at a loss, and you rebuild it in good years. It has a cost: that part earns less.
2. Flexible withdrawals. For example: after a negative year you do not raise the withdrawal for inflation, or you cut it by a percentage set in advance. Small adjustments count for a lot, because they act in exactly the years when sequence risk bites.
3. A share in a life annuity. It turns part of the capital into an income paid for as long as you live, and shifts the risk of living longer than expected onto whoever pays it.

Diversification remains the basis of everything: we discuss it in Peace of mind and protection: investing with tomorrow in mind.

Where does a life annuity fit in?

A life annuity answers the one risk no withdrawal rate covers: not knowing how long you will live. There are two main routes.

• The pension fund annuity. At retirement, members of a pension fund can take at most 50% of their account as a lump sum, except for small amounts; the rest becomes an annuity. The options (an annuity reversible to the spouse, guaranteed for a number of years, or with a refund of the remaining capital) are explained in Finally retired: your pension fund doesn't have to retire with you.
• The insurance annuity. You pay in a lump sum and receive a regular amount for the rest of your life.

Either way you give up flexibility: the converted capital is no longer available for unexpected expenses or for your heirs. That is why it usually makes sense to convert only part of it, the part that together with the state pension covers fixed expenses, and leave the rest invested.

What to check before deciding how much to withdraw

1. The net real return: start from the expected return and take off costs (in the products' information documents), tax, the 0.2% stamp duty and inflation.
2. The horizon: plan for age 90-95 for the longer-lived member of the couple, not for average life expectancy.
3. Fixed expenses covered by certain income: the state pension and any annuities. The capital is for the rest.
4. The cash reserve: at least two years of withdrawals, kept apart from the invested part.
5. A flexibility rule written in advance: what you will do after a negative year, decided before it comes.
6. A yearly review: if the capital has fallen much more than expected, it is better to trim the withdrawal slightly now than heavily in ten years.

Glossary

• Withdrawal rate: the amount withdrawn in the first year as a percentage of the starting capital; in later years the amount grows with inflation.
• Net real return: the return net of costs, taxes, stamp duty and inflation; it measures how much the capital's purchasing power really grows.
• Sequence-of-returns risk: the extra damage losses cause when they come in the first years of withdrawals.
• Remaining life expectancy: the average number of years left to live at a given age, according to mortality tables.
• Life annuity: an amount paid at regular intervals for as long as the person is alive, in exchange for a lump sum.
• Stamp duty on financial products (imposta di bollo): 0.2% a year on the value of securities accounts, investment funds and investment policies.

Sources

• W. P. Bengen, Determining Withdrawal Rates Using Historical Data, Journal of Financial Planning, October 1994 (FPA reprint 2004).
• P. L. Cooley, C. M. Hubbard, D. T. Walz, Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable, AAII Journal, February 1998.
• W. D. Pfau, An International Perspective on Safe Withdrawal Rates: The Demise of the 4 Percent Rule?, Journal of Financial Planning, December 2010 (table 3 and the paragraph on costs).
• ISTAT, 2025 mortality tables (estimates), Italy, men and women (in Italian).
• ISTAT, demographic indicators, year 2025, 31 March 2026 (in Italian).
• ISTAT, consumer prices, December 2025 (final data; table 1 for the FOI index, table 12 for health services) (in Italian).
• European Central Bank, monetary policy strategy (the 2% inflation target) (in Italian).
• Decree-Law 66 of 24 April 2014, art. 3, the 26% rate and the exclusion of government bonds (in Italian).
• Presidential Decree 642 of 26 October 1972, Tariff, part I, art. 13, paragraph 2-ter, stamp duty on financial products (in Italian).
• Legislative Decree 252 of 5 December 2005, art. 11, pension fund benefits as lump sum and annuity (in Italian).
• Calculation engine of our saving and drawing down simulator (the logic behind the table and the example ending at 95, checked by running the engine).