The 4% Rule

Seeking A Fixed Percentage Approach To Retirement Spending

The fixed percentage withdrawal strategy is the polar opposite of constant inflation-adjusted spending. Subsequent strategies we consider will strive to strike a balance between these two. This fixed percentage strategy calls for retirees to spend a constant percentage of the remaining portfolio balance in each year of retirement.

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The Perks Of Being A Flexible Spender In Retirement

William Bengen’s 1994 article introduced the concept of the 4% rule for retirement withdrawals. He defined the sustainable spending rate as the percentage of retirement date assets which can be withdrawn, with this amount adjusted for inflation in subsequent years, such that the retirement portfolio is not depleted for at least thirty years.

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How Do Taxes Affect The 4% Rule?

Because the tax situations of individuals will vary so greatly in terms of tax rates, interest and dividends supported by the portfolio, and the cost-basis of the taxable account, it is impossible to create one general number for a sustainable spending rate from a taxable account.

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A Safer Approach To Retirement Income Planning

The relationship between stock market valuations and sustainable spending rates has great implications for retirement planning when we consider how the pre-retirement savings phase and the post-retirement withdrawal phase can be linked through the stock market valuation level at retirement.

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