Q: Dear Julia: I always planned on being able to retire when my retirement accounts hit 1 million dollars, this July they hit that goal but now I am wondering if I have saved enough. Someone told me about the four percent rule, what is it and is it still relevant today?
Ready to Retire
Dear Ready to Retire: According to Investopedia.com, the Four Percent Rule is, “the rule of thumb used to determine the amount of funds to withdraw from a retirement accounts each year. The Four Percent Rule seeks to provide a steady stream of funds to the retiree while also keeping an account balance that will allow funds to be withdrawn for a number of years. The 4% rate is considered to be a “safe” rate, with the withdrawals consisting primarily of interest and dividends. The withdraw rate is kept constant, though it can be increased to keep pace with inflation.” The Four Percent Rule is merely a guideline that financial professionals and retirees have used to make retirement withdrawal calculations and projections. Your second question is a very good one! When interest rates were higher, this Four Percent Rule was a good starting point because it tried to keep withdrawal rates reasonable. It also considered inflation which is important as things increase in cost as the years progress. Having a starting point or guideline to follow can be healthy, but it is not a replacement for creating a specific plan for your success. I would encourage you to sit down with a retirement planning specialist and go over your unique situation in detail. This will give you the confidence to know what the right decision is for your retirement.
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.
No strategy assures success or protects against loss. Investing involves risk including loss of principal. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.
Email me your questions at [email protected] or call 541-574-6464. You can also post you question on our Facebook page: https://www.facebook.com/FinancialFreedomWealthManagementGroup