Safe Withdrawal Rate (SWR) — safe withdrawal rate

What is Safe Withdrawal Rate?

Safe Withdrawal Rate (SWR), or safe withdrawal rate, is the maximum percentage of an investment portfolio that you can withdraw annually without risking depletion of funds over a specified time horizon. Most commonly referred to as the 4% rule.

Where does the 4% rule come from?

The 4% rule was popularized by William Bengen in 1994 and confirmed by the Trinity Study (1998). The research analyzed historical returns of the US market from 1926 and showed that a portfolio consisting of 50-75% stocks and 25-50% bonds survived at least 30 years with annual withdrawals of 4% of initial value (adjusted for inflation) in over 95% of scenarios.

How does it work?

1. In the first year of FIRE, you withdraw 4% of portfolio value
2. In each subsequent year, you withdraw the same amount increased by inflation
3. The portfolio grows (or falls) independently of withdrawals

Example

Portfolio: 2,000,000 PLN. Inflation: 3%.

• Year 1: withdrawal 80,000 PLN (4%)
• Year 2: withdrawal 82,400 PLN (80,000 × 1.03)
• Year 3: withdrawal 84,872 PLN (82,400 × 1.03)

Is 4% really safe?

It depends on context:

Arguments for

• 95%+ of historical scenarios ended successfully
• In most cases, the portfolio at the end of 30 years was larger than at the beginning
• Accounts for wars, crises, stagflation

Arguments against

• Based on historical US market data (best market in history)
• 30 years is too short if you transition to FIRE at age 35
• Current stock valuations are historically high, which may lower future returns
• Doesn't account for Polish taxes (19% on capital gains)

Alternative approaches

Lower SWR (3-3.5%)

For longer horizons (40-50 years) or more conservative investors. Requires a larger portfolio, but gives peace of mind.

Dynamic withdrawals

Instead of a fixed amount, you adjust withdrawals to market conditions — in good years you withdraw more, in bad years less. Increases portfolio survival chances.

Guardrails strategy

You set upper and lower withdrawal limits. If the portfolio grows above the upper limit — you give yourself a raise. If it falls below the lower limit — you temporarily cut expenses.

How Freenance can help

Freenance calculates your personal SWR based on real assets, expenses and time horizon. Financial Freedom Runway shows how many months you'll survive at the current withdrawal level — and how changing strategies will affect the outcome.

👉 Check your Runway with Freenance — freenance.io