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The popular 4% rule says you can spend 4% of your retirement savings in the first year of retirement. You then adjust this amount annually for inflation to calculate future withdrawals.
The 4% rule was developed in the 1990s by financial advisor William Bengen. ... let's imagine you have $1 million in retirement savings. ... A $42,024 withdrawal would be exactly 3% of the $1.4 ...
For example, consider using the 4% rule to find a baseline number. Each year, calculate what that baseline withdrawal will represent as a percentage of your portfolio value at the time.
The 4% withdrawal rule calls for retirees to withdraw that portion from their investment portfolio in the first year of retirement. In each subsequent year, the amount of those withdrawals is ...
Notice that the 4 percent rule has no connection to the other rule—to target 85 percent of your preretirement income. The whole thing is made up out of the blue." [4] The original Trinity study was based on data through 1995. An update of their results using data through 2009 is provided in Pfau (2010). [5]
The rule was later further popularized by the Trinity study (1998), based on the same data and similar analysis. Bengen later called this rate the SAFEMAX rate, for "the maximum 'safe' historical withdrawal rate", [3] and later revised it to 4.5% if tax-free and 4.1% for taxable. [4] In low-inflation economic environments the rate may even be ...
Bengen later stated the 4% guideline was intended as a "worst case scenario" for retirees in United States, using a hypothetical example of someone who retired in 1968 at a stock market peak before a protracted bear market and high inflation through the 1970s. In that scenario, a 4% withdrawal rate allowed the investor's funds to last 30 years.
On Decoding Retirement, Michael Finke discusses the differences between the 4% rule, the four-box method, and Social Security/RMD withdrawal for retirement. Retirement spending: A comparison of 3 ...