By Craig Erwin, Ph.D.
The 4% rule, widely used by financial advisors, says retirees can safely withdraw 4% of their retirement savings each year without outliving their money. William Bengen, a retired financial advisor, developed the 4% rule in 1994. Recently some financial advisors have cautioned that perhaps 4% is too much to withdraw each year. They claim it could be disastrous if you were to retire right before a nasty, extended bear market in stocks and/or a long period of high inflation. Bengen sees it differently. He now says that the 4% rule is too conservative; that you can withdraw more than 4% each year safely. Bengen now says that withdrawing 4.7% each year is safe. So, if you have $1 million in retirement savings, you can safely withdraw $47,000 a year. Obviously everything depends on the conditions that exist after you retire, but this gives you a tool that you can use to make realistic plans. And using it should make your money last as long as you do.
Are you convinced that you won’t outlive your money? Are you saving enough to accumulate the amount of wealth you need to retire? What would you do if you learned after retirement that your savings were insufficient?
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