$1.5M at a 4% withdrawal rate = $60K/year before taxes

The 4% rule explained

In 1994, financial planner William Bengen published a study that changed retirement planning forever. He tested every 30-year retirement period going back to 1926 and found that a retiree who withdrew 4% of their portfolio in year one — then adjusted for inflation each year — almost never ran out of money.

The 1998 Trinity Study (by professors Cooley, Hubbard, and Walz) confirmed and expanded Bengen's findings using a 50/50 stock/bond portfolio across rolling 30-year periods. The result: a 95% historical success rate.

The math is simple. Flip the 4% rule and you get the "multiply by 25" rule:

Want to spend $60K/year? You need $60,000 × 25 = $1,500,000. That's the number. But the number is gross — before taxes take their cut.

The real numbers

A $1.5M portfolio at 4% gives you $60,000/year. But how much of that you actually keep depends heavily on where you live.

Now compare that across states:

No state income tax saves you roughly $200/month. That's meaningful, but it won't transform your lifestyle. The real variable isn't taxes — it's what things cost where you live.

What $4,000/month actually buys

Same withdrawal. Same $4K/month. Radically different lives depending on location.

The 4% rule doesn't care where you live. But your quality of life on $4K/month is entirely determined by geography. The same nest egg that means "be very careful" in San Francisco means "live well" in Thailand.

The risks the 4% rule doesn't cover

The 4% rule is a useful starting point, not a guarantee. Here's what can break it:

Sequence of returns risk. If the market crashes in your first few years of retirement, you're withdrawing from a shrinking portfolio. Even if the market recovers later, the early damage compounds. A bad first 5 years can cut your portfolio's lifespan by a decade or more.

Healthcare before Medicare. If you retire before 65, you're buying your own health insurance. ACA plans for a single person run $300-600/month. A serious medical event without employer coverage can be catastrophic.

Inflation spikes. The 4% rule accounts for average historical inflation (~3%). But inflation came in waves: it peaked near 9% in 2022, and it has re-accelerated again in 2026 — reaching 3.8% year-over-year in April (the highest since mid-2023), with some forecasters projecting close to 6% for Q2. A couple of years of elevated inflation eats years off your portfolio's life.

The 30-year assumption. This is the big one. The Trinity Study tested 30-year periods. If you retire at 65, that gets you to 95 — probably fine. If you retire at 40, you need your money to last 50+ years. Research by Michael Kitces and others suggests the safe withdrawal rate for a 50-year horizon drops to around 3.3%, not 4%.

At 3.3%, a $1.5M portfolio gives you $49,500/year — not $60K. After California taxes, that's about $3,400/month. The margin for error gets thin fast.

What you actually need

Here's the formula: take your desired annual spending, multiply by 25 (for a 30-year retirement) or 30 (for 50+ years). These are the pre-tax numbers.

But remember: these are pre-tax withdrawal amounts. If you're in California and want to actually spend $60K/year after taxes, you need to withdraw closer to $80K — which means you need $2M, not $1.5M.

The gap between "I have $1.5M" and "I can actually live on $1.5M in California" is about $600K-$1.1M. Taxes are the silent partner in every retirement plan.