Jun 29, 2020
Welcome to a new week and a new theme here on the One Minute Retirement Tip!
This week I’m talking about the 4% rule.
The 4% Rule is a short-hand rule of thumb that helps you calculate how much of your portfolio you can safely withdraw in retirement without running out of money.
If you apply the 4% rule to your retirement savings, you would take your portfolio value and multiply that amount by 4%...so if you get to retirement with $1 million saved, and multiply that $1million by 4%, you get $40,000. So according to the 4% rule, you can withdraw $40,000 from your portfolio in year 1 of retirement, then increase that withdrawal amount for inflation each year without worrying too much about running out of money.
4% is considered a safe withdrawal rate that is backed by some well-documented research. But it’s actually a pretty flawed rule of thumb that doesn’t take into account the complexities of retirement circumstances that change, an investment portfolio that’s changing, and the complexity of adjusting that 4% withdrawal rate years into retirement.
So this week, I’ll be talking about why the 4% rule can be useful in planning for retirement...up to a point, some landmines to watch out for when using this rule of thumb, and an alternative to the 4% rule that’s way more useful in helping you plan for a retirement where you don’t outlive your money.
That’s it for today, but before you go...If you haven’t already left a review for the One Minute Retirement Tip, please consider leaving an honest review in Amazon or iTunes. I read them all, so feel free to leave any feedback or topic suggestions there too.
Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.
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