You may have heard of the “4% rule” when it comes to retirement. The idea is simple: After you retire, you withdraw 4% of your investment portfolio each year. In theory, this helps ensure your savings last for your lifetime. While this rule can be a helpful starting point, it’s not a one-size-fits-all — and it’s definitely not a substitute for a plan tailored to your specific needs, wants and wishes.
The truth is, how much to withdraw in retirement depends on factors like when you retire, if you’ll work part time, how long you expect retirement to last, your lifestyle goals, inflation and whether you want to leave a financial legacy to heirs. So, the 4% rule should be viewed as more of a guide than a strict rule.
Let’s start with age. The 4% rule is often based on someone retiring at 65 and expecting to live until about 92. But if you retire earlier, you may want your portfolio to stretch further. In that case, you might need to start with a lower withdrawal rate, maybe closer to 3%. And if you retire later, you might safely withdraw a little more — perhaps 4.5% to 5% — depending on your financial situation.
