What the 4% rule actually says (and where it came from)

The rule was born in the United States in 1994, when financial planner William Bengen tested how much a retiree could have withdrawn from a balanced portfolio across decades of American market history without running out of money. The later Trinity Study reinforced his finding, and a rule of thumb was set in stone: start by drawing 4% of your capital, increase that rand amount by inflation each year, and you have a high probability of your money surviving a 30-year retirement.

Three assumptions are quietly baked into that number, and they matter far more than the number itself:

• 1.A 30-year horizon. Roughly the time from age 65 to 95. Retire earlier, or live longer, and the maths changes.
• 2.A balanced portfolio. A mix of shares and bonds that keeps growing through retirement — not cash sitting on the sidelines.
• 3.Inflation-adjusted withdrawals. A fixed real income, regardless of what markets do in any given year.

Read in rands, the rule has a neat corollary: if 4% must cover your income, you need roughly 25 times your annual spending in capital. A retiree who needs R400 000 a year would, on this logic, want about R10 million invested. That single figure is why the rule spread so quickly — it turns a complicated question into one tidy multiple.

Worth knowing: even Bengen has moved on. In more recent work he has revised his own figure upward, toward roughly 4.7%, after accounting for a wider mix of assets. The man who created the rule no longer treats 4% as fixed. That alone should tell you something about how to use it.

Why South Africa is not the United States

Importing a rule of thumb is easy. Importing the conditions that made it true is not. The 4% figure rests on American inflation, American market returns and American spending patterns — and on all three counts, South Africa has historically been a different country to retire in.

Higher historical inflation

For 25 years our inflation target sat in a 3%–6% range, with prices often pushing the upper half of that band. Because the rule forces your income to rise with inflation every year, higher inflation means bigger annual increases — and bigger increases drain capital faster. South Africans also consistently underestimate inflation, which compounds the problem when the increases arrive.

Different returns and harsher sequence risk

Our equity market can deliver strong long-run returns, but it does so with more volatility. That sharpens sequence-of-returns risk — the danger that a poor market in the first few years of retirement does lasting damage. Two retirees with identical average returns can end up worlds apart purely because of the order in which those returns arrived. A bad first decade can break the rule even when the long-term average looks perfectly healthy.

Different spending, and a real structural change

Local retirees, on average, draw more from their capital than the rule assumes — closer to 6% than 4%. But the most important shift is recent and under-discussed: in November 2025 National Treasury and the Reserve Bank replaced the long-standing 3%–6% range with a single 3% inflation target. The very thing that made South Africa a riskier home for a fixed-rule approach — structurally high inflation — is the thing now being deliberately lowered. If that target holds, the historical case against 4% genuinely weakens. Markets can still rise or fall, so this is a reason for measured optimism, not certainty.

What South African research and the rules actually show

Local studies of sustainable retirement spending tend to land in a familiar place. Rather than a single magic number, the industry works with a sensible band that changes with your age and circumstances.

The direction of travel is clear: lower drawdowns at younger retirement ages, with a little more room as the horizon shortens. Age-based drawdown thinking — the idea that a 60-year-old and an 80-year-old should not draw the same percentage — is steadily replacing the one-size-fits-all rule.

The 4% rule meets the living annuity

For most South African retirees, this debate plays out inside a living annuity, and the living annuity has rules of its own. Each year you must select an income of between 2.5% and 17.5% of your capital, and you can adjust that percentage only once a year, on your policy anniversary.

That wide band is where the trouble starts. The average South African draws closer to 6% than 4% — and an average is not a recommendation. It is a number that hides a large group of retirees quietly heading toward the “point of ruin”: the moment when inflation has pushed their rand income so high, relative to shrinking capital, that they are forced toward the 17.5% ceiling and their real income begins to collapse. Once you are pinned against that ceiling, the annuity can no longer keep pace with your cost of living.

“The average drawdown rate is not a target. It is a warning about how easily good intentions drift into over-drawing.”

Before we go further, it helps to make this personal. A rule means very little until you see it against your own capital, your own drawdown and a realistic return and inflation assumption. The calculator below lets you do exactly that.

The factors that decide whether 4% works for you

Two retirees can follow the identical rule and reach completely different outcomes. The reason lies in four inputs the rule itself ignores.

So — is the 4% rule still valid in South Africa?

The honest answer is: yes as a starting assumption, no as a promise. It is a reasonable opening figure for a retiree at a normal retirement age, with a sensibly diversified portfolio and controlled fees. It is too high for someone retiring early, paying heavy costs, or sitting in a portfolio with too little growth. And for a disciplined retiree benefiting from lower future inflation, there may be room to draw a little more — carefully, and reviewed each year.

The deeper point is the word itself. “Rule” suggests certainty that retirement income simply does not offer. Treat 4% as a starting assumption to be tested against your circumstances, not a guarantee to be trusted blindly, and you are already planning better than most.

The short video below sets out the same verdict in plain language — where the rule comes from, why South Africa is different, and the three things that decide your own safe rate.

A more practical approach for South African retirees

If the rule is the wrong destination, what is the right one? In practice, the retirees who do best tend to follow four habits rather than one rule.

1. Start with your sustainable rate, not a rule of thumb. Build the figure from your capital, costs, age and required return — not from a number written for another country.
2. Review every year on your policy anniversary. This is the single most-skipped step, and the one that most often prevents the slide toward the drawdown ceiling.
3. Build flexibility into your income. The retirees who adjust in weak years are the ones whose income survives them. A fixed real withdrawal from a volatile portfolio is precisely the combination that fails.
4. Consider blending with a guaranteed annuity. Covering your essential expenses with a guaranteed income, and keeping a living annuity for flexibility and legacy, removes much of the pressure the 4% debate creates.

Frequently asked questions

This article is educational content and does not constitute personalised financial, tax or investment advice. Drawdown rates, sustainable income and the value of investments depend on your individual circumstances, and market values can rise or fall. Figures and percentages are illustrative and not a guarantee of any outcome. Before setting or changing a drawdown level, or making any retirement income decision, speak to an AS Brokers adviser for a professional review of your situation. AS Brokers CC is an authorised financial services provider, FSP 17273.