Does the 4% rule work in the UK?

The 4% rule is a rule of thumb from US research: take 4% of your starting pot in the first year, raise it with prices each year after, and the money has usually lasted 30 years. It leaves out UK tax, fees and the state pension, so the calculator tests it with them.

Your money lasts to 95, with £34,138 left.

3%, 4% and 5% from £500,000

£500,000 at 65, 80% in a pension and 20% in an ISA, 5% growth a year before fees, 2.5% inflation, and the full state pension on top. The amounts drawn are before tax and rise with prices.

Drawn from the pot each year	Before tax	Steady growth: money	Lasts to 95 in
3%	£15,000	lasts to 95	76 out of 100 market tests
4%	£20,000	lasts to 95	49 out of 100 market tests
5%	£25,000	falls short from 88	25 out of 100 market tests

The last column tests each one 500 times, each with a different random mix of good and bad years in the markets (a Monte Carlo simulation).

Why the result varies

• A bad decade at the start (sequence risk) does the most damage, because money is taken out while values are down.
• Fees come off every year. 0.4% a year on a pension is in these figures.
• Tax on pension withdrawals depends on your other income. The state pension uses most of your personal allowance.

Your own figures

Try the calculator with your own figures. The Income you want step takes your spending, and "How sure is this?" runs the same 500 market tests on your plan.