The “4 percent rule” was a retirement spending approach that became mainstream in the 1990s. The rule suggested that a retiree with an average portfolio distributed between stocks and bonds (approximately 60-40) should withdraw 4 percent of his or her retirement funds each year (adjusting each year for inflation). If the retiree could stay limited to that 4 percent, he or she would be able to fund retirement for at least 30 years.
The simplicity of the 4 percent rule made it hugely popular with investors. The method made planning easy and was projected to leave the vast majority of retirees with surpluses late in life. Many quickly adopted the method and the approach became a staple of retirement budgeting.