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Is the 4% Safe Withdrawal Rate Still Applicable in Retirement Today?

March 09, 2022

The “4% rule” has long been the mainstay of retirement planning, and it has been said that it would provide a consistent stream of income for retirees. However, with changes to markets, the cost of living in retirement, and projected lifespan, the 4% rule may not be the tried and true method that it once was. Read on to learn more!

What is the 4% Rule for Retirement Savings?

Essentially, the 4% rule states that retirees can plan on withdrawing 4% of the total value of their investment portfolio each year of their retirement. With further investment growth, the dollar amount would change each year to compensate for the rate of inflation, ensuring a comfortable annual income for years to come.

Why Has the 4% Rule Become Outdated?

Once the most popular trope of retirement advice, in recent years, it seems that the 4% rule has become outdated—but why is that? There is lots of advice out there suggesting lowering the percentage or even raising it, which may be a helpful guideline, but we believe there is more to it than that.

While having general guidelines can be helpful, it is important to consider that boilerplate advice will always fall short when it comes to financial considerations. There are many personal factors to consider outside of an investment portfolio, such as Social Security income, pensions, and other types of investments, as everyone’s finances are structured differently.

Additionally, rules like this do not account for major market fluctuations and other things that truly cannot be predicted. While no one knows what the future of a market holds, having a comprehensive plan in place is the best defense against whatever fluctuations may occur both with today’s investments and the investments of the future.

For these reasons, it is better to create a retirement savings (and spending) plan that is tailored for your unique scenario. While guidelines and general advice may be vaguely helpful, having a retirement plan that is tailored to your lifestyle and specific needs can go much further towards ensuring that you are able to maintain your lifestyle and enjoy your investments for many years after you leave the workforce.

If you are interested in creating a specific and tailored plan for your retirement, we would love to be a resource for you! We specialize in personalized financial guidance that gets to know your individual needs. Get in touch to learn more!