A safe withdrawal rate is the share of your savings you can take out in the first year of retirement, then raise with inflation each year, without running out over a long retirement. The most cited figure is 4%, from a 1990s study of US market history that found a 4% starting withdrawal survived nearly every 30-year period since the 1920s.
The rule runs both ways. Withdrawing 4% of $1,500,000 gives $60,000 in year one. Turned around, it says you need 25 times your annual spending to retire: $60,000 of spending times 25 is $1,500,000. That multiplier is the backbone of most FIRE planning.
Four percent is a starting point, not a law. Retiring at 40 instead of 65 means a 50-year horizon, where many planners use 3.25% to 3.5%. High stock valuations, low bond yields, and heavy fees all argue for a lower rate. A pension, Social Security, or willingness to cut spending in bad years argues for a higher one.
The common mistake is applying 4% to a portfolio with a large slice in one employer's stock, or in cash, when the research assumed a diversified mix of stocks and bonds. A second is treating it as fixed: real retirees adjust spending as markets move, which is what makes the plan durable.