Does the 4% Rule Still Apply for Retirement

In the past, experts said that in the first year of retirement withdraw 4% of your retirement and increase from there each year based on inflation. But the question now is, is this still a worthy rule. Let’s look at the fact.

Right off I will give you two reasons why this may not work for you:

  1. Many have very low balances in their retirement fund.
  2. Low interest rate could cause the saving to deplete too quickly.

According to recent data, the average 65-74-year-old only has about $140,000 in their retirement account. If you apply the 4% rule, then they are only withdrawing $5,600 per year. This is significantly lower than they would normally live on and makes them dependent on Social Security or pensions.

The biggest portion of your retirement saving is most likely invested in less volatile investments such as government bonds or corporate bonds, that only yield about 3% returns. If you would use the 4% rule to withdraw then the money would not replenish quickly enough to last you the remainder of your life.

So how can the 4% rule apply to retirement if most people do not have enough money to maintain the withdrawal rate. We all know that the 4% rule is not perfect, but is it a starting point. It can also help you determine how much money you want to save before retirement. If you look at what 4% of $100,000 would be that is only $4,000 per year. Which is not enough to live on without supplemental income. It also shows just how much you will need to save to continue living life the way you have gotten used to living.

So is there something better than the 4% rule? Sure, but they are even scarier than the 4%. If you want to have around $50,000 a year without supplemental income, then you will have to determine what the withdrawal rate will be and save according. This could mean having to save up to or more than 1 million before retirement. This can be a scary number for people who have not done a lot to save their money over the years. Having a good financial advisor is key to making sure you are where you want to be when you retire.

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