What is the 4% Rule?

The 4% rule comes from the 1998 Trinity Study, which back-tested US portfolios (50–75% equity, the rest bonds) against every 30-year retirement starting between 1926 and 1995. It found that withdrawing 4% of your starting corpus in year one, then increasing that rupee amount by inflation every year after, survived nearly all 30-year periods in US market history. Restated simply: a corpus of about 25X your annual expenses should last 30 years.

How the 4% rule works

If you have ₹1 crore at retirement, 4% = ₹4 lakh in year one. Next year you might withdraw ₹4 lakh × (1 + inflation). So your "monthly pension" in the first year is 4% ÷ 12 of the initial corpus.

Is 4% safe for India?

The 4% figure is specific to US inflation (historically 2–3%) and US equity/bond returns over the study's window — neither transfers cleanly to India. Indian inflation has run structurally higher (5–7% over most multi-decade stretches), medical inflation runs higher still (12–15%/year), and there's no Social Security-equivalent floor income to fall back on if a plan runs short. Because of this, most Indian planners use 3–3.5% instead of 4%, which sounds like a small change but has a large effect on the corpus you need, since corpus = annual expenses ÷ withdrawal rate.

The corpus difference, with real numbers

For ₹1 lakh/month (₹12 lakh/year) in retirement expenses: at 4% you'd need ₹3 crore; at 3.5% you'd need ₹3.43 crore; at 3% you'd need ₹4 crore. That's a ₹1 crore swing — roughly 33% more corpus — just from choosing 3% over 4%. In rupee terms on a ₹2 crore corpus: 4% gives ₹8 lakh (₹66,700/month) in year one, 3.5% gives ₹7 lakh (₹58,300/month), and 3% gives ₹6 lakh (₹50,000/month) — each then rising with inflation.

Check sustainability

The right number for you depends on retirement length, equity/debt mix, and how much margin you want against a bad sequence of early-retirement returns. A retirement planner that runs Monte Carlo simulation — testing your plan across thousands of market scenarios rather than one average-return assumption — is more reliable than applying a single rule. See how much corpus you need for how this multiplier is derived, and use the Retirement Planner to test your own numbers at 3%, 3.5%, and 4%.