The 4% rule, adapted for Nepal: how much you can safely withdraw from your corpus

A reader close to retirement sent me a tidy plan: Rs 1.5 crore saved, Rs 6 lakh a year in expenses, divide one by the other, and the famous 4% rule says he is set for life. He had read it in a dozen places. The arithmetic was right. The assumption underneath it was not.

The 4% rule is a genuinely useful idea built on a specific country's market history, and that history is not Nepal's. Imported wholesale, it quietly overstates how much a Nepali corpus can safely pay out. The honest Nepali number is lower, and the gap is large enough to matter.

Where the 4% rule comes from

The number is not folklore. William Bengen, a US financial planner, published Determining Withdrawal Rates Using Historical Data in the Journal of Financial Planning in October 1994. Running US market data back to 1926, he found that a retiree who withdrew 4% of the portfolio in year one, then raised that rupee figure by inflation each year, never ran out of money over any 30-year window, using a portfolio of 50% US large-cap stocks and 50% intermediate-term US Treasuries. He named that worst-case survivable rate the SAFEMAX.

Three Trinity University professors confirmed it in 1998: a 50/50 portfolio survived about 95% of rolling 30-year periods at a 4% inflation-adjusted withdrawal. That pairing, Bengen plus Trinity, is why "4%" became shorthand for a safe retirement.

The corollary everyone quotes is the Rule of 25: if you can withdraw 4%, your target corpus is 1 ÷ 0.04 = 25 times your annual expenses. Lower the rate and the multiple climbs.

Why it does not transfer to Nepal

The rule is a product of the 20th-century US return environment, which was unusually generous. The moment you test it elsewhere, it weakens. Wade Pfau's international study ran the same method across roughly 20 developed countries over 109 years and found 4% was safe in only 5 of them; in seven countries the truly safe rate was below 2%, and across most of Europe it sat "closer to 2% than 4%." His later work on emerging markets found 4% is not a safe default there either. None of this covers Nepal directly, but the direction is unambiguous: outside the US, the safe rate is usually lower.

Three Nepal-specific forces push it down.

1. Inflation is higher and stickier. The 4% rule raises your withdrawal by inflation every year no matter what the market did, so high inflation is its single biggest enemy, a point Bengen himself stresses. Nepal's inflation has averaged roughly 5–6% over the last decade and nearly 8% over the long run since the 1960s, against the 2–3% the US rule was comfortable with. Even Morningstar's 2025 work, on US data, cut the safe starting rate to 3.9% for 30 years and 3.5% for 35 once inflation was taken seriously. Nepal starts from a worse position.

2. The safe-return ceiling is lower. A Nepali retiree's defensive options top out modestly. Commercial-bank fixed deposits currently run roughly 2.75% to 5.5%, frequently below inflation in real terms, the same squeeze covered in where to park money when FD rates fall. The growth engine, NEPSE, has delivered about 8.69% a year over 22 years excluding dividends, but with brutal volatility, bull runs followed by a 60%-plus drawdown. A portfolio leaning on FDs for safety simply cannot sustain the same withdrawal as one earning long-run US equity returns.

3. Tax skims the income. Both of the income streams a retiree leans on are taxed at source and finally. Bank and FD interest paid to an individual carries a 6% TDS, and cash dividends a 5% TDS. Live on FD interest and your spendable income is already 6% below the headline rate before inflation touches it. The US rule was modelled gross of much of this drag.

The honest Nepali number: about 3.5%

Put those together and 4% is too aggressive for a Nepal-only portfolio. A rate around 3.5% absorbs the higher inflation, the lower safe-return ceiling, and the tax drag with a sensible margin. This is the figure the blog already uses in its Rs 2 crore retirement-corpus math, its lean FIRE range, and the earn-in-dollars-retire-in-Nepal case, for the same reasons laid out here.

Be clear about the status of this number: there is no Nepal-specific safe-withdrawal study. Nobody has backtested Nepali market history the way Bengen backtested the US. So 3.5% is a calculation built on global methodology plus Nepal's inflation, returns, and tax inputs, not an empirical Nepali finding. Treat it as a planning anchor, not a promise.

What that does to the corpus multiple:

Withdrawal rate	Corpus multiple	For Rs 6 lakh/year	For Rs 12 lakh/year
4.0% (US rule)	25×	Rs 1.50 crore	Rs 3.00 crore
3.5% (Nepal, this blog)	~29×	Rs 1.71 crore	Rs 3.43 crore
3.0% (conservative)	~33×	Rs 2.00 crore	Rs 4.00 crore

The multiples come straight from 1 ÷ rate. Moving from 4% to 3.5% adds roughly Rs 21 lakh to the target for every Rs 6 lakh of annual spending. That is the real cost of the imported assumption, and it is better to find it in a spreadsheet than at age 65.

Two things that make it harder, and one that helps

Sequence-of-returns risk is the quiet killer. If NEPSE halves in your first two retirement years while you keep withdrawing, you sell units cheap and the corpus may never recover, even if average returns later look fine. The danger concentrates in the first decade after you stop earning, when the balance is largest. The standard defence is to hold two to three years of expenses in cash or FDs so you are never forced to sell equities into a crash.

A long horizon for early retirees. The 4% rule assumed 30 years. Someone pursuing FIRE in their 40s needs the money to last 40 to 50 years. Nepal's life expectancy sits in the low 70s, but life expectancy at birth understates the years remaining for someone who reaches 40 healthy. A longer horizon argues for a lower rate again, which is why the coast and barista FIRE variants exist: keep some income flowing so the corpus does less of the work.

The traditional retiree gets a small break. Banks commonly add about 0.5% to 1% to FD rates for senior citizens (60-plus); Nabil, for example, adds 1%. That lifts the safe-return ceiling slightly, but only for those who retire at the conventional age, not the FIRE crowd in their 40s.

For context, the one Nepali early-retirement model the blog could find, an Investopaper scenario, does not use the 4% rule at all; it assumes a punishing 10% inflation, an 8% return, and lands on a roughly Rs 8 crore corpus to retire at 40. The exact inputs are arguable, but the instinct, that Nepal needs a fatter corpus than the US rule implies, is the same one this post reaches.

How to use the number

A workable approach for a Nepali corpus:

• Size the target at 29× annual expenses (3.5%), not 25×.
• Hold 2–3 years of expenses in laddered FDs or cash as the sequence-risk buffer.
• Keep the growth portion in a diversified mix of CIT, mutual funds, and selective NEPSE, not all in deposits, or inflation eats the corpus from the other side.
• In a bad market year, take the buffer instead of selling equities, and skip the inflation raise on your withdrawal. Flexibility beats rigidity; the retirees who get into trouble are the ones who raise spending into a downturn.

The deeper point is that the first decade of accumulation, the grind covered in why the first Rs 10 lakh is the hardest, is what builds the 29× corpus. The withdrawal rate only matters once you have something to withdraw from.

What you actually need to know

Three things:

1. 4% is a US number, and Nepal's conditions are tougher. Higher inflation, lower safe returns, and a tax on investment income all push the rate down.
2. Plan around 3.5%, which means about 29× your annual expenses. It is a reasoned estimate, not a backtested Nepali fact, so build in margin rather than treating it as exact.
3. The first decade decides survival. A cash buffer and the willingness to skip an inflation raise in a bad year matter more than squeezing the rate from 3.5% to 4%.

Retiring on a corpus is one of the few money decisions you cannot easily undo, so the conservative number is the kind one. Got a corpus and an expense figure you want pressure-tested? Email parjanya57@gmail.com.

This post is part of the Nepal Money Basics guide — the roadmap and FIRE section.