Retirement planning 18 March 2026 7 min read

The 4% rule applied to a UK pension: does it still work?

The 4% rule is the most-cited retirement planning shorthand: withdraw 4% of your pot in the first year, increase by inflation each year after, and your money should last 30 years. It's a useful starting point - but it was designed for a US 60/40 portfolio in the 1990s, and the UK retirement picture is meaningfully different.

Where the 4% rule comes from

The rule originates from a 1994 study by US financial planner William Bengen. He looked at historical US stock and bond returns from 1926 onward and asked: what's the highest withdrawal rate that would have survived every 30-year retirement window in that data, including ones starting just before major crashes (1929, 1966, 1973)?

His answer was 4% of the starting pot, increased by US inflation each year, with the portfolio invested ~60% stocks and ~40% bonds. The phrase “safe withdrawal rate” came from this work, and 4% has been the canonical number ever since.

Subsequent research has refined it - some studies suggest 3.3% is safer when starting from today's higher equity valuations, others note that 4% is conservative for shorter retirements or someone willing to flex spending in bad years - but the original 4% is still the reference point most retirement-planning conversations start from.

The two interpretations

People use the phrase “4% rule” to mean two different things, and the difference matters:

• Initial × rate, inflated each year (the canonical interpretation). Pot is £500,000 at retirement. Year 1: £20,000. Year 2: £20,000 × (1 + inflation). Year 3: £20,000 × (1 + inflation)². And so on. Withdrawals are decoupled from pot performance after year one.
• Current pot × rate, recalculated each year. Year 1: 4% of current £500,000 = £20,000. Year 2: 4% of whatever the pot is now - could be £540,000 (= £21,600) or £440,000 (= £17,600).

Bengen's original work used the first interpretation. The second is sometimes called “constant-percentage withdrawal” and behaves very differently: it can't run out (you're always taking a fraction of what's left), but the income stream swings with the markets.

Excelergy's drawdown rate planning mode uses the canonical interpretation: pot × rate at retirement, indexed by inflation each year afterwards.

Why the UK case is different

The original 4% study didn't model:

• A meaningful State Pension. The full UK State Pension is around £11,973/year in 2025/26 and starts at State Pension Age (currently 67 for those born after 1960). For most UK retirees this is a substantial floor of income that arrives partway through retirement. The 4% rule assumes the pot is the only income source.
• A tax-wrapped ISA alongside the pension. Most UK savers approaching retirement have both pension and ISA pots. The 4% rule was written for a single portfolio. In practice, you can rotate withdrawals between wrappers to optimise tax and preserve some capital.
• UK-specific tax rules. 25% of pension withdrawals can be tax-free up to the Lump Sum Allowance; ISA withdrawals are fully tax-free; salary continues being NI-taxable. The net spending number depends on the wrapper mix.
• The £125,140 Personal Allowance taper. Drawing above £100,000 of taxable income in a year erodes your Personal Allowance, creating a 60% effective marginal rate band that doesn't exist in the US tax code. Crosses this and the “4%” net can fall sharply.

The net effect: a UK retiree applying a pure 4% rule to their pension without accounting for State Pension is being too conservative. Once State Pension kicks in, the gap between “needed” and “drawn from pot” closes substantially, and the pot's required burn rate falls.

Using rate-mode in Excelergy to test the question

The planner's drawdown rate mode is built specifically for “what happens if I draw X% of my pot?” questions. To set it up:

1. Open Excelergy, click Advanced, then in the Spending card set Plan by to Drawdown rate.
2. Set your pension uncrystallised pot value and growth rate.
3. Set the drawdown rate to 4 (for 4%).
4. Leave the State Pension fields at their defaults (full state pension at age 67) or adjust to match your situation.

The model will withdraw 4% of your pot in year one of retirement, then index that withdrawal by your inflation rate each year afterwards. State Pension is paid on top of the drawdown - not netted against it - so you can see what total annual income the strategy actually produces.

The wealth chart shows whether the pot survives or runs out, and the ledger shows the year-by-year income (drawdown + state pension) and the pension pot balance over time.

Caveats worth keeping in mind

• The model uses a single growth rate. Real returns aren't a single number - they vary year-to-year. A bad first decade in retirement (“sequence-of-returns risk”) is the single biggest threat to the 4% rule, and a single-rate projection doesn't surface it. Monte Carlo simulation does, at the cost of being much harder to explain.
• The 4% rule is a planning benchmark, not a regulation. Nothing in UK pension rules requires or limits you to 4%. Flexi-access drawdown has no annual cap. You can withdraw any amount in any year; the question is whether the pot lasts.
• Longevity matters. The original 4% study assumed a 30-year retirement. A UK couple retiring at 60 with one or both reaching 95+ might be planning for 35+ years, which pushes the safe rate slightly lower.

A reasonable approach for UK planning

Use 4% as a starting reference, not a target. In Excelergy:

• Set drawdown rate to 4% and check that the pension pot survives to your end age. If it does comfortably with money left over, you may have headroom to retire earlier or spend more.
• Then check 3% and 5% to see how sensitive the outcome is. A pot that lasts at 4% but runs out at 5% has a fairly tight tolerance.
• Toggle Today's £ on the wealth chart to see income in current-money terms. The nominal numbers grow with inflation; what you actually care about is real spending power.
• Add State Pension at the correct age. For UK retirees, this is usually the biggest reason the “4% rule is too conservative” criticism applies.

The honest answer to “does the 4% rule work for UK pensions?” is: it's a reasonable starting point, but a UK plan that ignores State Pension, the LSA, and the tax-wrapper mix is leaving useful information on the table. The model lets you test it against your actual numbers in about two minutes.