4% withdraw rule is $ x 25 ??!?

So you've heard about the 4% withdrawal rule and then you see some math savvy people start talking about multiplying a number by 25.  What gives?

The 4% withdrawal rule is based on a study that some finance monkeys went out and looked at what would happen if you retired at any point during the last 30 years and found that you have a 98% chance of your money NOT running out. This is then used for people to calculate a safe withdrawal rate.

Where that 25 comes in is that people are doing some fast high school math on you. While it doesn't really matter what value you start with here lets say you want to buy a 9 dollar cup of coffee.  How much money would you need for a 4% withdrawal to cover your purchase?


$$ *.04 = 9
$$ = 9/.04 (we divide both sides by .04 to get it off the value of the number we don't know)
$$ = 9* 1/.04  (just another way of writing it)
$$ = 9* 100/4 (removing those decimal places)
$$ = 9*25 (And there that 25 is!)
$$ = 225

Now notice that it doesn't really matter how much money you want to spend if you multiply it by 25 you get that 4% withdrawal rule.

If you want to be more secure you can go with a 3% withdrawal rate you can still use this.
100/3 = 33.33

So if your being cautious you can go with the 33 rule.