Does the 4% rule work outside of US?

May 31, 2026

The 4% rule was built on US markets and dollar spending. Could it travel abroad?

Maria retired to a quiet town outside Frankfurt with a portfolio she'd spent thirty years building: European stocks, European bonds, everything in euros. She spends everything in euros too, so market news on euro exchange rate never once cost her a night's sleep.

Ben built his fortune on US stocks. On holiday in Southeast Asia he fell for Penang, and he never quite went home. The cost of living there was low enough that he could FIRE (financially independent, retire early), so he left his software job in California, applied for an MM2H visa, and moved for good. He knew Malaysia's capital markets weren't as deep as America, and he knew the famous 4% rule was built on US returns^[1], so he did the consistent thing: he left the pot where it was, in US equity, and drew from it to live.

Both plans look sound. But they take opposite approaches. Maria stays in her local market, which keeps her clear of any currency mismatch. Ben, knowing that same local market isn't deep enough to lean on, kept his pot in the US instead. So — would they work?

Where the 4% rule actually comes from

You've heard the rule: withdraw 4% of your savings in the first year of retirement, adjust that amount for inflation each year after, and your money should last about thirty years. It's the most repeated number in retirement planning.

It's also one of the most quietly assumption-laden. The rule comes from a 1994 study by William Bengen that used US stock and bond returns through the twentieth century^[1]. Buried in it are three assumptions:

• A portfolio split roughly half stocks, half bonds;
• those assets are invested in US markets;
• and withdrawals spent in US dollars.

For most of Bengen's American readers, all three conditions are easily met as long as they invest it according to the asset allocation and rebalance it annually. However, move abroad and they no longer are — which is where both Maria and Ben run into trouble, the opposite ways.

Maria's problem isn't the currency

Maria holds euros and spends euros, so currency is not her problem. Her problem is that her whole retirement sits in one market. The question is whether that market supports a 4% withdrawal — and for most of the developed world, the historical answer is no^[2].

Wade Pfau took Bengen's method and applied it to 17 developed markets over 109 years of data. Even after granting each country the hindsight-perfect asset mix — an advantage no real retiree has — a 4% withdrawal survived in only four of the seventeen. Under a realistic fixed allocation, it survived in none^[2].

Worst-case safe rate (1900–2008, hindsight-optimal allocation)	Markets
Cleared 4%	Canada, Sweden, Denmark, United States — 4 of 17
Below 4%	the other 13, including United Kingdom, Netherlands, Switzerland, Germany, Japan
Under a realistic 50/50 split	none cleared 4%

Germany — despite being a developed economy, did not have a capital market that can reliably support a 4% rule. The 4% rule would have failed there more than half the time^[2]. So Maria's matched currency does not protect her. Her exposure was never the currency; it was the market.

This is also the point Ben understood. If 4% only really held in the US market, the right response was to invest in the US market — which is what he did. The third thing he never considered is that he is going to be spending in ringgit. In 2001, the ringgit had been pegged to the dollar for three years, with no de-peg in sight.

Would Ben's plan work?

To illustrate the effect of the currency risks on spending on foreign currency while keeping the assets in the US, we backtest the same portfolio two ways: held in US assets throughout, but drawn down to fund spending in two different currencies. In the first chart, the green line shows the portfolio balance under foreign currency spending while the grey line shows the portfolio balance under USD spending (i.e. standard 4% rule). One caveat to keep in mind, is that the dollar has been unusually dominant over these decades, and so keeping the pot in US tends to show a good result. But the past is no guarantee of the future, that the US will keep that dominance forever.

By default the chart shows Ben's case, where he retired at 2001. Over 20+ years, the ringgit has dropped its peg to the USD and strengthened against USD over the early- to medium-term (it weakened to USD after 2014), causing the withdrawal and conversion to be more costly for Ben. At the end of the projection, the balance is lower than what he would have ended up with if he's spending in USD.

Ben assumed the rule would hold because it always had, at least in American environment. However once we start moving to different start years and spending currency in the tool above, we can see that in some cases, the 4% rule, which was already conservative by backtesting, breaks.

Currency behaves this way because it is sticky. Exchange-rate movements do not recover as fast as the stock market, and its persistence is what makes it dangerous in retirement. Similar to sequence-of-returns risk, if the spending currency strengthens early while the retiree is drawing down, each withdrawal costs more to fund, so he sells more of a portfolio sooner. Capital spent early never compounds, and the plan does not fully recover even when the currency later reverses.

So what can Ben actually do?

Let's start with what he can't. An individual retiree can't hedge currency the way institutions can. The clean tools for it, such as currency forwards and currency options, aren't realistically available to someone drawing down a personal portfolio. Nonetheless, the good news is that he still has some levers to manage the risk.

The first is to use currency-hedged ETFs. Many global funds come in hedged versions that neutralize the foreign-currency exposure of their holdings. But these are mostly available for major currencies with deep market, such as the euro, pound and Canadian dollar. Maria could buy a euro-hedged version of a US equity fund, which strips the currency swings against the dollar. On the other hand, Ben has far fewer options, because hedged products are scarce for emerging market currencies such as Malaysian ringgit.

The second option is to adopt dynamic withdrawal rules, such as Guyton-Klinger. The modification is to apply this logic to the portfolio measured in the spending currency (i.e. after currency conversion). A bad exchange rate movement then shows up as a smaller balance, and the rule trims spending in response, the same way it would react to a bad year in the market.

The third is to hold a larger cash base to absorb the currency shocks. When there is adverse currency move against him, he can draw from that buffer instead of forced-selling and converting at a bad rate, so he isn't forced to lock in the loss at the worst time.

The fourth is to go local, partially. Ben could move part of his money into Malaysian capital markets and match his spending currency directly. This will help cut the currency exposure, but as we saw with the non-US markets earlier, they tend to support a lower safe withdrawal rate, so Ben has to cut his withdrawal rate and spend less.

None of these makes the risk completely disappear. However, these levers can be utilized to control the currency risks.

Would their plans work?

Maria's plan held its currency but rested on a local market that history didn't support a 4% withdrawal rules. Ben followed the rule but was spending on different currency and so understated the currency risk.

The real lesson is that currencies introduce a different type of risk that traditional retirement rules may not account for. On ActuaPlan, we simulate your plan across thousands of possible paths, with income and spending in the currencies you actually earned and use.

References

1. Bengen, W. P.Determining Withdrawal Rates Using Historical Data1994. Journal of Financial Planning.. https://www.financialplanningassociation.org/learning/publications/journal/OCT94-determining-withdrawal-rates-using-historical-data
2. Pfau, W. D.An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?2010. Journal of Financial Planning.. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1699526