The 4% rule
For years, many financial professionals have suggested that most retirees can afford to withdraw up to 4% of their retirement assets each year with very low risk of their money running out in less than 25-30 years. But this “4% rule” was created at a time when interest rates were much higher than they are today. Back then, many investors with conservative portfolios could depend more on bond income to replenish these withdrawals. Now, retirees have to allocate more money to stocks to help make up for today’s historically low bond yields. In any case, there is no “hard and fast” rule on how much money you can or should withdraw. The actual amount needs to be based on your retirement age, life expectancy, lifestyle and other sources of income. Other factors, such as whether you have long-term care insurance or whether you’re hoping to leave some of your retirement money to your heirs or favorite charities also need to be considered. If you’re struggling to deal with these complex issues, consider seeking the advice of a fee-only fiduciary financial planner, who can help you understand different retirement cashflow scenarios and recommend a strategy that may increase the chances of your retirement nest egg lasting as long as you want it to.