Plan your retirement with the safe 4% withdrawal rule. Learn asset allocation and rebalancing tips. Want to plan your retirement income faster? Check below NOW!
1. What is the 4% Rule?
In the first year of retirement, withdraw 4% of your total retirement savings. Every year after that, adjust the withdrawal amount for inflation. For example, with $1,000,000 saved, you’d withdraw $40,000 in the first year. If inflation is 2%, you’d withdraw $40,800 in year two.
2. Core Assumptions
- Asset Allocation: 50% in stocks (e.g., S&P 500 Index Fund), 50% in
intermediate-term government bonds
- Rebalancing: Adjust portfolio annually to maintain the 50/50 ratio
- Long-Term Investor Mindset: No market timing—Buy and Hold strategy
3. Can You Withdraw More Than 4%?
- 4.5% Withdrawal: Possible with small-cap diversification
- 2.5% Withdrawal: Needed for bond-only portfolios
- 5.5% Withdrawal: Sustainable in 99% of cases, but risky in crisis
- 6–6.5% Withdrawal: Likely to deplete funds within 15 years
4. Is the 4% Rule Still Valid in Today’s Market?
With low interest rates and high stock valuations, some suggest a 3% rule. Shiller PE Ratio can help guide your withdrawal strategy.
| Shiller PE Ratio | Recommended Withdrawal Rate |
|---|---|
| Over 20 | 3–4% |
| 12–20 | 5% |
| Under 12 | 5.5% |
5. Why is the 4% Rule So Safe?
Historical data shows that with a 4% withdrawal rate, 97% of retirees still had their principal intact after 30 years. It offers peace of mind and longevity protection.
6. Key Takeaways
The 4% Rule is a proven strategy for sustainable retirement. Adjust for inflation, rebalance your portfolio, and monitor market conditions as needed.
