The 4% rule — does it actually work in the UK?
The American retirement rule that the internet can't stop quoting. Here's what it gets right, what it gets wrong, and what to use instead.
If you've spent any time researching retirement, you've encountered the 4% rule.
Withdraw 4% of your portfolio in year one, then increase that amount each year with inflation, and — the theory goes — you won't run out of money over a 30-year retirement. It comes from a 1994 paper by financial planner William Bengen, who analysed historical US market and inflation data.
It's the most-quoted rule in personal finance. It's also, for most UK retirees, the wrong rule to use.
What the 4% rule gets right
The insight behind the 4% rule is genuinely useful: the sequence of returns matters as much as the average return. A bad run of markets early in retirement, when your portfolio is largest and you're drawing heavily on it, can permanently impair it even if markets recover later. Bengen found that across every 30-year period in US history, a 4% withdrawal rate survived.
That sequence-of-returns insight is real and relevant to UK retirees too.
What it gets wrong for the UK
The 4% rule was built on US market returns and US inflation. UK market returns have historically been lower. UK inflation has behaved differently. The result is that a safe withdrawal rate calibrated on US data may be optimistic when applied to a UK-only portfolio.
More importantly, the 4% rule was designed for a world without a meaningful guaranteed income. Most UK retirees have a State Pension — currently worth around £11,500 a year — that starts at 66 or 67 and continues for life. That's a guaranteed income stream the 4% rule ignores entirely.
If you need £30,000 a year and your State Pension covers £11,500 of that, you only need to fund £18,500 from your portfolio. At 4%, that requires £462,500 — not the £750,000 the standard rule implies.
The State Pension is arguably the best annuity in the world: inflation-linked, government-backed, and free of investment risk. Any retirement model that doesn't account for it is missing a major piece.
The defined benefit pension
If you have a defined benefit (final salary) pension on top of the State Pension, the picture changes further. DB income is guaranteed, pensionable, and typically inflation-linked. A retiree with DB pension plus State Pension may need very little drawdown portfolio at all to fund a comfortable retirement.
What should you use instead?
The 4% rule is a starting point, not an answer. For UK retirees, a better approach is to:
Model your actual income streams — State Pension, any DB pension, rental income — and when they each start.
Identify the gap: what your expenses exceed your guaranteed income.
Work out how much portfolio you need to fund that gap sustainably.
Stress-test it — what happens if you live to 95? What if markets are poor for the first decade?
That's a different calculation for every person. It requires knowing your specific numbers, not a universal rule.
How giltedge approaches it
Rather than applying a withdrawal rate, giltedge runs a month-by-month projection of your actual financial position — what comes in from each income stream, what goes out in expenses, how your assets grow and are drawn down, and what the tax implications are at each stage.
It shows you the year your money runs out, if it does. It shows you the year your pensions deplete, if they do. And it shows you what happens if you change your spending, your retirement date, or your drawdown rate.
The "How Much Can I Spend?" card answers the question directly: given everything you own and everything you owe, how much extra could you spend each month and still hit your target?
That's not a rule of thumb. It's your projection.
