How Much Is a 4% Withdrawal Rate After Tax?

Key takeaways

• Bengen's 1994 paper assumed all retirement assets sat in tax-deferred accounts, so the 4% he arrived at was a gross rate and never a spending rate.
• A £500,000 UK pension drawn at 4% alongside a full state pension nets £17,004.48 in 2026/27, which is a withdrawal rate after tax of 3.40%.
• Spending 4% net from that same pot takes a 4.70% gross draw, above the 4.25% Bengen found could exhaust a portfolio in as little as 28 years.
• The same 4% from a £500,000 ISA nets the full £20,000, so the entire gap is the wrapper rather than the withdrawal rate itself.
• Morningstar's 2025 base case of 3.9% excludes tax and fees; 1% of fees alone cuts it to 3.4%, and tax then docks the cash on top of that.

The 4% rule was always a gross number

You've read that 4% is the safe rate to draw from a retirement pot. What you actually want to know is the withdrawal rate after tax, which is how much of it reaches your current account.

For a UK pension in the 2026/27 tax year, the answer is 3.40%. Take a £500,000 pot and draw 4% of it. That's £20,000 gross. If you're also receiving the full new state pension, £2,995.52 of that £20,000 goes to HMRC and £17,004.48 is yours to spend.

That isn't an accounting footnote. It's the difference between the rate the research produced and the rate you live on.

William Bengen's 1994 paper in the Journal of Financial Planning is where the figure comes from. He ran a 50/50 stock and bond portfolio through retirement start years from 1926 onwards and measured how long the money lasted. His finding on 4% was specific: "In no past case has it caused a portfolio to be exhausted before 33 years, and in most cases it will lead to portfolio lives of 50 years or longer."

One sentence in the same paper settles what kind of number that is. "Note that since we are assuming that all retirement assets are held in tax-deferred accounts, capital-gains taxes are not a concern," Bengen wrote. In the Financial Planning Association's reprint of the paper the word tax appears four times, all of them in that one passage. So 4% describes what leaves the portfolio, not what arrives in your pocket.

Morningstar says the same thing about its own research, in its own words: "Our research factors in inflation, but it doesn't incorporate the impact of expenses or taxes, both of which can further curtail starting safe withdrawal rates." Its 2025 report puts the highest safe starting rate at 3.9% over a 30-year retirement, at a 90% probability of money still being there at the end. That 3.9% is gross too. Fees do the same kind of damage before tax gets a turn: assume 1% of annual expenses and a tax-deferred account, and Morningstar's "base-case starting safe withdrawal rate goes down to 3.4%". Its own worked example then does the tax conversion. On a $2 million portfolio with 1% in annual expenses, the safe amount is "$68,000 on a pretax basis and $61,200, factoring in a 10% withholding rate." Our guide to the safe withdrawal rate outside the US runs into the same wall, and says so.

What a 4% withdrawal rate after tax looks like on a UK pension

Start with how the money comes out. HMRC's Pensions Tax Manual sets the split on an uncrystallised funds pension lump sum, the simplest way to take a slice of an untouched pot. Of the payment, "25% is not liable to tax, that is, it is paid tax-free" and "75% is taxed as pension income in the same way as a pension paid under a registered pension scheme."

So a quarter of every withdrawal is clean and three quarters joins your taxable income. In 2026/27 the personal allowance is £12,570, the basic rate is 20% on income from £12,571 to £50,270, and the higher rate is 40% from £50,271 to £125,140.

Here is a 4% draw from four pot sizes, for a single person already receiving the full new state pension of £241.30 a week.

The net rate sits at 3.40% across three of those four pots. That's not a coincidence. While the whole draw stays inside the basic rate band, the arithmetic is fixed: three quarters of the withdrawal is taxed at 20%, which is 15% of the gross, and 85% of it survives. The rate only moves once the drawdown pushes total income past £50,270, which at a 4% draw happens at a pot of roughly £1.26 million.

Above that line the 40% band does the same job twice as hard. At £2 million the net rate falls to 3.18%, and £16,451.04 of the £80,000 never reaches the retiree.

The state pension is why the first pound of drawdown is taxed

The full new state pension for 2026/27 is £241.30 a week. Over 52 weeks that's £12,547.60, against a personal allowance of £12,570. It leaves £22.40 of allowance unused.

That single fact does most of the work in the table above. A retiree with the full state pension and nothing else pays no income tax at all. Add a pension drawdown and almost every taxable pound of it is taxed from the first pound, because the allowance it would otherwise shelter is already spoken for.

Take the state pension away and the same £500,000 pot behaves differently. A 4% draw with no other income puts £15,000 of taxable pension income against the £12,570 allowance, so the tax is £486 rather than £2,995.52. The net rate is 3.90%, not 3.40%. Half a percentage point of your pot, every year, decided by something that has nothing to do with your portfolio. The mechanics of that collision are the subject of our piece on state pension tax.

Spending 4% after tax means drawing 4.70% gross

Turn the question round, because this is the version that matters. You have budgeted £20,000 a year of spending from a £500,000 pot. What do you have to withdraw?

£23,524. The tax on that draw is £3,524, and the gross withdrawal rate is 4.70%. With no state pension in payment the answer is £20,572, or 4.11%. For a higher-rate retiree with a £2 million pot wanting £80,000 net, it's £103,501, or 5.18%.

The chart above puts those gross rates side by side with the ISA, which charges nothing at all. Now compare them with what Bengen actually wrote about rates above 4%. He found that "a 4.25-percent first-year withdrawal could exhaust a portfolio in as little as 28 years." Of initial rates higher still he was blunter: "An initial five-percent withdrawal rate is risky; six percent or more is 'gambling.'"

So the UK retiree who wants to spend 4% of a £500,000 pension is not taking a 4% risk. They're taking a 4.70% risk, which is past the point where Bengen's own data stopped clearing 30 years. The higher-rate case at 5.18% sits in the band he called risky. Nothing about the portfolio changed. The tax code moved the reader two steps up a ladder they were told they were standing at the bottom of.

The size of that gap is worth stating plainly. Bengen's margin between safe and not safe was 25 basis points of withdrawal rate, from 4% to 4.25%. The gross-up on a UK pension alongside a full state pension is 70 basis points. That is nearly triple the width of the margin the original research had to play with.

The same pot in an ISA keeps all 4%

An ISA is the control case. GOV.UK puts it plainly: "You can save tax-free with Individual Savings Accounts (ISAs)," and "In the 2026 to 2027 tax year, the maximum you can save in ISAs is £20,000."

A £500,000 stocks and shares ISA drawn at 4% hands over £20,000 and keeps £20,000. The net rate is 4.00%, the gross rate needed to spend 4% is 4.00%, and the two numbers are the same number. Nothing about the investments is different. The wrapper is. That is the 4% rule after tax, and it is a different number in every account type.

This is the practical content of the gross versus net gap, and it's why the question "what's my withdrawal rate" has no single answer. The rate is a property of the account, not of the portfolio. Two retirees with identical £500,000 portfolios, identical allocations and identical spending can be running a 4.00% plan and a 4.70% plan. Which accounts you draw from first is a separate question, and we've worked through which accounts to withdraw from first in retirement elsewhere.

The US arithmetic is gentler at the bottom and sharper in the middle

American readers get a different shape of the same problem. For 2026 the IRS sets the standard deduction for a single filer at $16,100. A filer who is 65 or older adds $1,650, raised to $2,050 for someone unmarried and not a surviving spouse. On top of that sits a new deduction: "individuals age 65 and older may claim an additional $6,000 deduction," which phases out above $75,000 of modified adjusted gross income and runs from 2025 through 2028.

Stack those and a single 65-year-old shelters $24,150 before any tax is due. The 2026 brackets then charge 10% up to $12,400 of taxable income and 12% up to $50,400.

Run a traditional 401(k) through it. A $500,000 account drawn at 4% pays out $20,000, which is less than $24,150, so the federal tax is zero and the net rate is the full 4.00%. A $1,000,000 account drawn at 4% pays out $40,000. Taxable income is $15,850, the tax is $1,654, and the net rate is 3.83%. Spending 4% net from the million needs a 4.19% gross draw.

That's a gentler slope than the UK pension, and the reason is the same reason in reverse. The US allowance isn't consumed by a state pension before the retiree touches it, because Social Security is only taxable above a threshold. The IRS sets the base amount at "$25,000 if you're single, head of household, or qualifying surviving spouse."

Cross that line and the slope steepens fast. The IRS is explicit in its guidance on taxing benefits: "Generally, up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable" once half the benefits plus all other income exceeds $34,000. In that zone an extra dollar of 401(k) withdrawal drags up to 85 cents of benefits into taxable income with it. Where the full 85 cents applies, a dollar of withdrawal adds $1.85 to taxable income, so at the 12% rate the real marginal charge is 22.2 cents. The headline bracket says 12 cents.

Canada does not let you pick the rate

There's one jurisdiction where the withdrawal rate isn't the retiree's decision. A registered retirement income fund has a mandatory minimum payment every year after the one in which it is set up. The Canada Revenue Agency's rule is mechanical. You calculate the minimum "by multiplying the fair market value ... of the property held in the RRIF at the start of the year by a prescribed factor."

For funds in the chart's "All other RRIFs" column, the factor is .0528 at age 71, .0582 at 75, .0682 at 80, .0851 at 85, and .2000 at 95 or older. So the minimum withdrawal at 71 is 5.28% of the balance, and nothing about sequence risk or valuations enters into it. The lowest federal rate for 2026 is 14% on the first $58,523 of taxable income, before any provincial tax.

A 5.28% forced gross rate is above Bengen's 4% and above Morningstar's 3.9% base case. Canadian retirees aren't obliged to spend it, only to take it out of the shelter. The withdrawal rate question still arrives, just relocated: it becomes a question about what happens to the money after it leaves.

The strongest objection is that the gross-up is not permanent

There's a real case against treating the 70 basis points as a fixed charge, and it has three parts.

The first is that tax isn't a constant percentage of the draw. The personal allowance and the 25% tax-free share are both absolute amounts, so the effective rate on a withdrawal depends on where the withdrawal sits. If allowances rise faster than a retiree's spending, the drag falls over time. That cuts the right way for the reader, and it also means the 3.40% figure is a snapshot of 2026/27 and not a constant.

The second is that the 4% rule was never a percentage after year one. Bengen's rule sets a pound amount in the first year and then indexes it to inflation, so the withdrawal rate stops being used. Our breakdown of fixed percentage withdrawal rules covers how differently the two behave. The counter to the counter is that the first-year amount is exactly what the gross-up inflates, and every later withdrawal is indexed off that larger base.

The third is the strongest. Morningstar's 2025 research found that retirees willing to accept variable spending could start at 5.7% rather than 3.9%. If the safe ceiling is really closer to 5.7%, a 4.70% gross draw is inside it with room to spare. That objection has force, and it comes with a condition attached: the flexibility is the thing that makes the rate work, which means spending falls when markets fall. The retiree who needed £20,000 net still needs £20,000 net. Flexibility doesn't remove the tax, it just absorbs the shortfall by cutting the spending the tax was supposed to fund.

A fourth point is practical rather than theoretical. Few retirees draw only from a pension. Couples have two personal allowances, many have ISAs alongside the pension, and the gross-up on a blended draw is smaller than on a pure one. Our work on filling the basic rate band shows how much that sequencing is worth. All of it narrows the gap. None of it closes it, because every route runs in one direction: the net rate is never above the gross rate.

What this arithmetic cannot tell you

The limitations here are specific, and most of them are about scope rather than method.

Every UK number assumes a single person on the rates and bands that GOV.UK publishes for 2026/27, and those bands are different if you live in Scotland. The table assumes the whole draw comes out as an uncrystallised funds pension lump sum, so a quarter of each payment is tax-free. A retiree who took the entire 25% up front, capped at £268,275, faces a fully taxable drawdown afterwards and a worse net rate than anything shown here. A pot held partly in an ISA produces a better one.

The US figures are federal only, and the $6,000 senior deduction expires after 2028 on current law. The Canadian figures are federal only too, and provincial tax would add to them. None of the three sets covers a year other than the current one, and a Budget can move any of them.

On the research side, the honest statement is that Bengen's sample is one country's history. It starts in 1926 and it is drawn from one market, which is also the market whose record produced the 4% figure in the first place. Morningstar's 3.9% is not history at all. It's a forward-looking simulation at a 90% success threshold, and the firm's own definition of success is thin: "If at least a penny remains in the portfolio at the end of year 30, then the trial is considered successful." Neither tells you what the next 30 years holds, and the Trinity-style withdrawal rate success rates that most people have seen quoted share the same limitation.

What the tax arithmetic can tell you is narrower and firmer. Given a pot, a wrapper and a set of rates, the net figure is not an estimate. It's a calculation.

What would change the conclusion

If the personal allowance stopped being consumed by the state pension, the UK gap would mostly close. The allowance is £12,570 and the full state pension is £12,547.60. A retiree who deferred the state pension, or who never built a full record, has most of that allowance free and lands nearer 3.90% than 3.40%.

If the tax-free share of a pension changed, every number in the table would move with it. The 3.40% net rate holds because three quarters of each withdrawal is taxable. At a different fraction the arithmetic is different, and the direction depends on which way the fraction goes.

If your money is already outside the tax net, none of this applies. An ISA at 4.00% net and a Roth account both make the gross rate and the net rate the same number, which is why the balance between your taxable and tax-free wrappers matters more to your spending than a quarter point on the withdrawal rate ever will.

The number to watch isn't the headline rate. It's the share of your retirement assets sitting in a wrapper that taxes the exit, because that share is what converts a 4% plan into a 4.70% plan. Your withdrawal rate after tax follows from that split more closely than from anything you choose about the portfolio. LedgerTouch tracks the split; a spreadsheet does the same job once a year. Either is enough to know which rate you are actually running.