Four Percent Rule

The 4% rule is a guideline for retirees that helps them determine how much they can safely withdraw from their retirement savings each year. It is based on the idea that a portfolio of stocks and bonds can generate enough income to support a retiree's lifestyle in retirement, even if the market experiences periods of volatility.

The 4% rule is not a guarantee, and there is no guarantee that a portfolio will be able to generate enough income to support a retiree's lifestyle in retirement. However, it is a good starting point for retirees who are trying to figure out how much they can withdraw from their savings each year.

There are a few things to keep in mind when using the 4% rule. First, the rule is based on historical returns, and there is no guarantee that the stock and bond markets will continue to perform as they have in the past. Second, the rule assumes that a retiree's spending will remain constant throughout retirement. However, it is possible that a retiree's spending will increase in the future, which could make it difficult to follow the rule.

Finally, the 4% rule is just a guideline, and retirees may need to adjust their withdrawal rate based on their individual circumstances. For example, retirees who have a long life expectancy or who are in poor health may need to withdraw less from their savings each year. Conversely, retirees who have a short life expectancy or who are in good health may be able to withdraw more from their savings each year.

If you are considering using the 4% rule, it is important to speak with a financial advisor to make sure that it is right for you.