A lot has been written lately on whether the 4% withdrawal rate for retirees makes sense anymore. The theory is if you are retired and you withdraw 4% of your savings annually & increase that dollar amount each year by the rate of inflation, you have an exceptional chance that your savings will last through retirement.
I’m not a big fan of “rules of thumb”. There are so many variables that can affect the likelihood of success in this case, that it practically makes the 4% rule useless.
Here are just a few things that can go wrong with a "rule of thumb" 4% withdrawal rate from your retirement plan:
- what happens if your portfolio’s rate of return is decimated by a few bad years in the market?
- what happens if you retired too early or live too long?
- what happens if you have to incur significant medical expenses or housing expenses later in life?
The point is most people experience some degree of uncertainty during retirement and therefore, must remain flexible and adjust their retirement plans on an ongoing basis.
Think of the 4% withdrawal rate as merely a loose guideline rather than a rule.
My best advice to continually update and adjust your financial plan, either on your own or with an advisor, as you go through retirement.
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