The Famous 4% Retirement Rule May Not Work for You -- Unless You Do This
Written by Maurie Backman for The Motley Fool -> The 4% rule is designed to make your retirement savings last at least 30 years. One major flaw is that it's too restrictive. Being flexible with the rule could help it serve you well. For decades, retirees have relied on the 4%
The 4% rule is designed to make your retirement savings last at least 30 years.
For decades, retirees have relied on the 4% rule as one of the simplest guidelines in retirement planning. And the concept is pretty simple.
In your first year of retirement, you withdraw 4% of your portfolio. After that, you adjust your withdrawals annually for inflation.
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That withdrawal rate has been tested against market and economic conditions over time. And if you stick to it, there's a good chance your retirement savings will last for at least 30 years.
But there's a problem. Many retirees treat the 4% rule as a rigid spending formula. And if you want the rule to work for you, it's important to be flexible.
The 4% rule is designed to make managing a retirement nest egg simple. The problem is that a stock market decline, especially early on in retirement, could put your savings at risk if you stick to the 4% rule.
Imagine you retire with $1 million in your IRA . Under the 4% rule, you'd normally be able to withdraw $40,000 in your first year of retirement and then repeat that withdrawal in subsequent years with inflation adjustments.
