How much can you take without running out?
The 4% rule, why it travels badly to the UK, and what to use instead.
There's a number that has escaped from academic finance into general conversation, and it's 4%. Take 4% of your pot in the first year, increase it with inflation each year after, and the money should last thirty years.
It's a useful piece of arithmetic and a poor plan, for reasons worth understanding — because the reasons point at what a better approach looks like.
Where the number came from
The 4% rule comes from American research in the 1990s, testing historical US market data to find the highest starting withdrawal rate that would have survived every thirty-year period on record.
Four assumptions are buried in it:
American returns. The twentieth-century US stock market was the single best-performing major market in history. Building a rule on it and applying it elsewhere is a survivorship problem — the equivalent test on most other developed markets produces a noticeably lower number.
Thirty years. A 65-year-old couple today has a meaningful chance of one partner reaching 95. Retire at 60 and thirty years is a coin flip, not a safety margin.
No State Pension. The rule assumes the portfolio funds everything. In the UK, a full new State Pension of £12,547.60 arrives at State Pension age and covers a substantial share of most people's essential spending — which changes the maths considerably, and mostly in your favour.
A different tax system. The rule describes gross withdrawals. What you can spend depends on the interaction of pension income, your Personal Allowance, capital gains and ISAs — which is a UK-specific question with a UK-specific answer, covered in Which pot do you spend first?.
None of this makes 4% useless. As a rough test of whether a plan is plausible, it's fine. As the actual rule you live by for thirty years, it's far too rigid in both directions — it can force you to keep spending in a year when you obviously shouldn't, and it can leave you dying with an enormous unspent pot because you never allowed yourself to increase.
The risk that actually matters
The danger in drawdown isn't that markets fall. Markets always fall eventually. The danger is when they fall.
This is sequencing risk, and it's easiest to see with an example. Two people each retire with £500,000, take £25,000 a year, and experience exactly the same set of annual returns over twenty years — one set in one order, the other in reverse. Same average return. Same withdrawals. Wildly different outcomes: the one who hit their bad years first can run out of money entirely, while the one who hit them last dies comfortably wealthy.
The mechanism is straightforward. Selling units to fund income during a fall crystallises the loss permanently. Those units are gone and can't participate in the recovery. Withdrawals in a downturn do damage that no subsequent good year fully repairs.
The consequence is that the first five to ten years of retirement carry disproportionate weight. A plan that survives them comfortably will usually survive everything.
What to do about sequencing risk
Hold a cash buffer. Two or three years of spending in cash means a market fall doesn't force you to sell anything. You spend the cash, let the portfolio recover, and refill the buffer from good years. This is the single most effective and least complicated defence available.
Don't draw a fixed sum regardless. The whole problem with the 4% rule is that it takes the same amount out of a portfolio that has just fallen 25%.
Cover essentials with guaranteed income. If your fixed costs are met by State Pension, DB income or an annuity, a market fall means postponing a holiday rather than facing a real problem. See Annuity or drawdown?.
Don't be too cautious either. Sitting entirely in cash swaps market risk for the certainty of inflation eroding you over a thirty-year retirement. That isn't safety; it's a different failure mode with a slower fuse.
A better approach than a fixed rate
Rather than one number for life, set a starting rate and a rule for changing it.
Start somewhere sensible. Research and industry practice tend to cluster in the region of 3.5% to 4.5% of the pot as an opening position for a retirement of thirty years or so, with the lower end more appropriate for someone retiring early and the higher end available to someone starting later or with substantial guaranteed income underneath.
That range is context for the discussion, not a recommendation, and it isn't a rate anyone should adopt because they read it here. It's a rough band derived from historical averages across large populations, and your own sustainable rate could reasonably sit either side of it depending on your assets, your other income, your time horizon, how much flexibility you've in your spending, and how much certainty you need. Working out what's genuinely sustainable for your particular circumstances — rather than for a hypothetical average retiree — is exactly the kind of question a regulated financial adviser is useful for, and it's worth asking before you commit to a figure you intend to live on for thirty years.
Set guardrails. Decide in advance what would make you cut back and by how much — for example, that if the pot falls more than 15% below its planned path, you skip that year's inflation increase and trim discretionary spending by 10%. Equally, decide what would let you increase. Writing the rule down while calm is worth a great deal, because the moment you actually need it is the moment you'll be least inclined to think clearly.
Review annually, not daily. Once a year, look at the pot, look at your spending, and adjust. Twelve reviews in a year isn't twelve times the diligence; it's twelve times the anxiety.
Let the rate rise as you age. A safe withdrawal rate at 60 isn't a safe withdrawal rate at 80, and not because the risk is worse — because the remaining horizon is much shorter. Sticking rigidly to your original percentage into your eighties is a reliable way to die with far more money than you needed and far fewer memories than you could have had.
The spending smile, again
Fixed-rate rules assume spending rises with inflation every year until death. Real spending doesn't behave that way. It runs high in the active early years, drifts down through the middle years, and rises again at the end when care costs arrive.
That shape is genuinely useful. It means front-loading income into your sixties and early seventies isn't reckless — it matches how you'll actually live — provided you hold a real reserve for later care costs rather than assuming the decline continues.
A plan that spends more early, less in the middle, and holds a contingency for the end will beat a flat inflation-linked line on both sustainability and on how much of your life you actually enjoyed.
What "running out" really means
One reframe worth holding onto. For most UK retirees, running out of pension doesn't mean destitution. The State Pension continues for life, and for many households it covers a large part of essential spending on its own.
So the real question is rarely "will I have nothing?" It's "at what age would I drop from my planned standard of living to my baseline one, and how likely is that?" That's a far more useful question, and it has an answer.
The Retirement Readiness Calculator gives you a depletion age on your own figures, so you can see where that point falls and what closing the gap would take.
This article is for general education only and isn't personal advice. Withdrawal rates depend on your circumstances, your other income and market conditions nobody can forecast — if you'd like to know what's sustainable for your own assets rather than for an average, get in touch.
Related in this series
If reading this raised a question about your own situation, get in touch.
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