Does the 4% rule actually work?

In simulations, withdrawing 4% of a $1M portfolio ($40,000/year) over 30 years succeeds roughly 90% of the time with a balanced portfolio, but outcomes range widely. It is a strong guideline, not a guarantee.

What is a Monte Carlo retirement simulation?

It runs your plan across many random but realistic market paths (for example 1,000) and reports how often your money lasts, revealing the range of outcomes that a single average return hides.

How can I improve my chance of not running out of money?

Withdraw a bit less, stay flexible and cut spending in bad years, work a little longer, or hold a more resilient allocation. Testing each in the calculator shows how much the success rate moves.

Retirement

Will your money last? $1M and the 4% rule

Linda just turned 65 with a million dollars saved, and she’s heard the rule you’ve probably heard too: withdraw 4% a year, $40,000, and you’ll be fine. Run that exact plan through 1,000 possible market histories, though, and the picture is mostly reassuring with a worrying tail.

Why one average return misleads

A lot of retirement calculators use one expected return and draw one smooth line. Real markets zigzag, and the order of good and bad years matters a great deal. A crash early in retirement, while you’re withdrawing, can sink a portfolio that the same returns in a different order would have left fine. That’s sequence-of-returns risk, and a single average hides it.

A worked example

Here’s Linda’s plan: a $1,000,000 portfolio at 65, withdrawing $40,000 a year for 30 years, with a 5% expected return and 11% volatility, run across 1,000 simulated markets:

Chance the money lasts: about 91%
Median ending balance: about $1.2 million (more than you started)
Rough bad case (bottom 10%): somewhere between nothing left and about $100,000

Nine times out of ten Linda’s money lasts, and the typical outcome leaves her with more than she started with. In the worst 10% of market histories, the same plan runs out or comes close. Each run draws a fresh set of 1,000 markets, so the bad-case and median figures move a little every time; the success rate stays close to 91%. The difference comes down to which market she happens to retire into, which is the one thing she can’t choose.

Stress-test your plan →Free retirement Monte Carlo calculator, no sign-up. See how often your money lasts and test what changes it.

What to do with a 91% chance

Whether a one-in-ten chance of falling short is acceptable is a personal call. If it worries Linda, there are levers to test. Withdraw a little less and the success rate climbs quickly. Stay flexible and cut spending in bad years. Or work one or two more years. The median result is worth noticing too. In most of the simulated markets she finishes with more than she started, so she could likely afford to spend a bit more, and spending too little out of fear has a cost of its own.

Where this estimate can be off

The simulation is random, so the exact percentage moves by a point or two each time you run it. That’s expected. It can’t know future returns, taxes or your Social Security, so treat it as a stress test of your withdrawal plan and use it to compare choices.

Figures from TheSharpDollar's retirement Monte Carlo calculator; because it is simulated, exact numbers vary slightly each run. Your result depends on your portfolio, withdrawals, and assumptions.