How much until you’re financially free? The 4% rule, tested for Europe
The 4% rule was built on US data and a 30-year retirement. Lucky them. What the research says for Europeans, and how you get to your own number.
Where the 4% comes from#
In 1994 the US financial planner William Bengen tested every retirement start year since 1926 against real market history. His question was simple: how much can a retiree take out each year without running dry?
His answer: take 4% of the portfolio in the first year, then raise that euro amount with inflation every year. With half the money in US shares and half in US government bonds, no historical retiree ran out of money in less than 33 years.
Guess first
US data for 1926 to 1995, from the Trinity study. With half or more of the money in shares, the same withdrawal held in 95% to 98% of cases.
Four years later, three professors at Trinity University ran a similar test for 1926 to 1995. You’ve probably heard of it as the Trinity study. Here’s how often an inflation-adjusted 4% withdrawal survived 30 years:
| Portfolio | Success rate |
|---|---|
| 100% shares | 95% |
| 75% shares, 25% bonds | 98% |
| 50% shares, 50% bonds | 95% |
| 25% shares, 75% bonds | 71% |
| 100% bonds | 20% |
Two things to take from this. A 4% withdrawal worked most of the time. Most is not always. And the “safe” portfolio without shares? It skipped leg day.
Now the same with your own numbers.
The fine print nobody reads#
The 4% rule is a good first estimate. But it comes with four assumptions, and every one of them matters to you.
- 30 years. Fine if you stop at 67. Too short if you stop at 50.
- US data. The United States had one of the best stock markets of the 20th century. You’re copying the homework of the class winner.
- No costs, no taxes. The studies ignore fund fees and tax on withdrawals. Your tax office won’t.
- Robot behaviour. The retiree raises spending with inflation every year, crash or no crash.
Longer than 30 years#
Bengen covered this himself. In his data, a starting rate of 3% to about 3.5% kept every portfolio alive for at least 50 years. At 4.25%, the worst case ran out after 28 years.
So going from 30 to 50 years costs you roughly half a percentage point. If you want your portfolio to carry you early, 3.25% to 3.5% is the more careful range. And that’s where “25 to 30 times your spending” comes from: 25 for a classic retirement, closer to 30 for a long one.
What changes outside the US#
Now the uncomfortable part. In 2010 Wade Pfau repeated the test for 17 developed countries with data from 1900 to 2008. Each retiree held only shares, bonds and bills from the home country. Pfau even gave them the best possible mix in hindsight. A cheat code, basically.
Guess first
The worst case is a retirement that started in a war year. Nobody forces you to hold only one country, and that’s what a global fund is for.
The highest withdrawal rate that survived every 30-year period:
| Country | Worst-case safe rate |
|---|---|
| Canada | 4.42% |
| United States | 4.02% |
| United Kingdom | 3.77% |
| Switzerland | 3.59% |
| Netherlands | 3.36% |
| Spain | 2.56% |
| Italy | 1.56% |
| France | 1.25% |
| Germany | 1.14% |
Only 4 of 17 countries got above 4%: Canada, Sweden, Denmark and the United States. Look at the bottom of the table. Ouch.
Before you panic: the worst cases for Germany, France and Italy are retirements that started in 1914, 1943 and 1944. War years. And nobody forces you to hold only domestic assets. A global index fund spreads that risk across dozens of countries. That’s the main reason I wouldn’t own a single-country portfolio, and it’s the topic of MSCI World vs FTSE All-World.
There’s a newer study too, by Anarkulova, Cederburg, O’Doherty and Sias, published in 2025, with data from 38 developed countries. Their result for a 65-year-old couple that accepts a 5% chance of running out: 2.31% a year.
So where does that leave you? 4% is the optimistic end, based on the winner’s history. Around 2.3% is the pessimistic end, based on everything that ever went wrong in a developed market. If you invest globally and stay flexible, you sit somewhere in between. Historical returns are not promises, in either direction.
The pension is your floor#
You don’t have to fund your whole life from the portfolio. The state pension pays for life and rises with wages. It will be thinner for our generation, as the pension maths shows for Germany and six other countries, but it will be there. How thick that floor turns out is decided by politicians who want to win the next election, not by maths. So I treat it as a bonus and run the number without it as well.
So the number that counts is the gap:
spending gap = annual spending − net pension
Planning to stop working for money before pension age? Then you need both numbers: the full amount for the bridge years and the gap for the time after. Stopping early also means a smaller pension claim. So use your own pension statement, not the model pensioner. He’s a statistical creature anyway.
Not in Germany? Take the figure from the pension statement of your own country, after health insurance if that’s deducted there, and in today’s money. For a rough start, the pension gap check has OECD values for 19 countries.
The taxman wants his cut#
A withdrawal is a sale, and a sale can trigger tax. You earned the money, paid tax on it, invested what was left and carried all the risk. The state carried none and still shows up for the payout. The studies ignore this. You can’t.
The rules differ by country. For Germany in 2026:
- Capital income is taxed at 25% plus a 5.5% solidarity surcharge on that tax, together 26.375%. Solidarity is mandatory here, in case you wondered. Church tax comes on top if you pay it.
- For equity funds, 30% of the gain is tax-free. That makes 18.46% on the gain.
- The first €1,000 of capital income per person and year is tax-free.
- Only the gain is taxed, not the whole sale.
The German details, including the advance lump sum, are in ETF tax in Germany.
Elsewhere, look up three things: the tax rate on capital gains, the yearly allowance if there is one, and whether your country taxes funds while you hold them or only when you sell. Then redo the example with your numbers.
Health insurance is the other bill that people who stop early like to forget. I cover it in FIRE in Europe.
How I’d use all this#
- Track what you really spend for a year. Really spend, not what you think you spend. The multiplier is useless without it.
- Deduct the pension you can realistically expect, in today’s euros.
- Multiply the gap by 25 for a first target and by 30 for a careful one.
- Add room for taxes and health insurance.
- Recalculate once a year. It’s a number, not a tattoo.
The last level of the course turns this into a one-page plan: the exit.
This article is education, not investment, tax or legal advice.
Sources#
- William P. Bengen: Determining Withdrawal Rates Using Historical Data, Journal of Financial Planning, 1994
- Cooley, Hubbard, Walz: Retirement Savings – Choosing a Withdrawal Rate That Is Sustainable, AAII Journal, 1998
- Wade D. Pfau: An International Perspective on Safe Withdrawal Rates, Journal of Financial Planning, 2010
- Anarkulova, Cederburg, O’Doherty, Sias: The safe withdrawal rate – evidence from a broad sample of developed markets, Journal of Pension Economics and Finance, 2025
- Deutsche Rentenversicherung: Rentenversicherung in Zahlen 2026
- Einkommensteuergesetz § 32d: tax rate on capital income
- Einkommensteuergesetz § 20: saver’s allowance
- Solidaritätszuschlaggesetz § 4: surcharge rate
- Investmentsteuergesetz § 20: partial exemption for equity funds
Education, not advice. I don’t know your situation, and past returns promise nothing. Check my numbers, then make your own call. You’re a grown-up.