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4% Rule Formula:
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The 4% rule is a retirement planning guideline that suggests retirees can safely withdraw 4% of their portfolio balance annually without running out of money over a 30-year retirement period. This rule was developed by financial planner William Bengen in 1994.
The calculator uses the simple formula:
Where:
Explanation: This calculation determines your first year's safe withdrawal amount. In subsequent years, you would adjust this amount for inflation.
Details: The 4% rule provides a straightforward method for retirees to determine how much they can safely spend each year without depleting their retirement savings too quickly. It's based on historical market data and aims to balance sustainable spending with portfolio longevity.
Tips: Enter your total retirement portfolio balance in dollars. The calculator will instantly show your recommended annual withdrawal amount based on the 4% rule.
Q1: Is the 4% rule guaranteed to work?
A: While based on historical data, the 4% rule is not a guarantee. Market conditions, inflation rates, and individual circumstances can affect its success.
Q2: Should I adjust the withdrawal amount over time?
A: Yes, the 4% rule typically suggests adjusting your withdrawal amount annually for inflation while maintaining the same purchasing power.
Q3: Does the 4% rule work for early retirement?
A: For retirement periods longer than 30 years, a lower withdrawal rate (3-3.5%) may be more appropriate to ensure portfolio longevity.
Q4: What if my portfolio performance differs from historical averages?
A: During market downturns, you may need to temporarily reduce withdrawals to protect your portfolio's long-term sustainability.
Q5: Does the 4% rule account for taxes?
A: No, the 4% rule calculates gross withdrawals. You'll need to account for taxes separately based on your specific tax situation.