The Retirement Withdrawal Rule Millions of Americans May Be Getting Wrong
Written by Maurie Backman for The Motley Fool -> The 4% rule is often recommended by financial planners. It has you withdrawing 4% of your savings your first year of retirement and adjusting future withdrawals for inflation. The rule could end up being too aggressive -- or con
It has you withdrawing 4% of your savings your first year of retirement and adjusting future withdrawals for inflation.
The rule could end up being too aggressive -- or conservative -- for you.
If you're saving for or approaching retirement, there's a good chance you've heard of the 4% rule. For decades, it's been the gold standard for managing a retirement nest egg.
The 4% rule has you withdrawing 4% of your portfolio during your first year of retirement and adjusting that amount annually for inflation. If you stick to that plan, there's a good chance your retirement savings will last for about 30 years.
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And that's not just wishful thinking. The 4% rule has been tested against different market scenarios, including periods of sluggish returns and other challenging economic environments. And it's still been shown to work.
But while the 4% rule remains a useful planning tool, assuming that it's guaranteed to work for you could be a mistake.
The nice thing about the 4% rule is that it simplifies things once you're ready to start tapping your IRA or 401(k). Rather than sit down each year trying to figure out how much to withdraw strictly based on current market conditions, you have a general framework that removes a lot of the uncertainty you might otherwise face.
