The Retirement 4% Rule Isn't Set In Stone

Sometimes You Need A Bit More, And Sometimes A Bit Less.

If you want to spend your twilight years on a beach at a bar, you've probably heard the 4% rule advised by personal finance experts as a surefire method to ensure that you can enjoy your sunset years in relative financial security. To avoid exhausting your nest egg, it's best not to withdraw more than 4% of your retirement fund each year after you retire.  However, consider 4% as a suggestion rather than a rule since it doesn't take into account the many ways life and retirement differ depending on the person.

However, according to financial educator and founder and CEO of Live Beneath Your Means, Grace Trewartha, following this rule strictly is not ideal because of its inherent limits.  She explains:

“The way it was originally developed assumed a lot of things about how that money was invested... I'm not a big fan of one-size-fits-all rules for personal finance, period, but I will say that I can understand the appeal of such a rule, particularly its simplicity.”

To make it easier to grasp, consider some real-world data. If you've amassed one million dollars in cash by the time you're ready to retire, withdrawing $40,000 a year will keep you going for approximately 25 years.  The 4 percent rule makes less sense if you've invested your retirement in a portfolio brimming with stocks with high-growth potential. “If your account is growing at, at, say, 8% a year and you’re only drawing out 4%, you’re never actually depleting your account. It’s growing faster than your withdrawals,” Trewartha explained. That's a decent spot to be in if you want to leave any heirs with a little bit of money, but it's less relevant to your future retirement, which I guess you'd want to enjoy.

The fact is that nothing in personal finance is universal because it is so deeply personal. So following rules that were designed with the concept of "retirement" in mind and may not apply to your situation will only lead to disappointment.

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