How Much Can You Withdraw From Your Retirement Account?Submitted by FundX Investment Group on June 21st, 2016
Most retirees will fund a portion of their lives by making withdrawals from their retirement accounts. The common rule of thumb is that retirees can withdraw 4% from their accounts each year, adjusted for inflation, with a high probability that their assets will last a lifetime.
The 4% rule initially came about in the 1990s from financial planner William Bengen; it’s also associated with the so-called Trinity study (learn more about the Trinity study here).
The 4% Rule
There’s a lot to like about the 4% rule: it’s easy to understand, and it’s been arrived at independently by various researchers. And having a sustainable income in retirement is a top priority for most retirees.
But the 4% rule has come under scrutiny after the tough market environment of the last 15 years. People who retired in the early 2000s faced two bear markets, including the losses of 2008-2009, and people who retire in bear markets run a higher risk of running out of money because they’re often withdrawing from their portfolios while their portfolios are losing value; by the time the market eventually recovers, they may have depleted more of their portfolios than they had hoped.
Recent low bond yields and what some perceive to be high stock valuations have led some researchers to suggest a more conservative 3% payout, but a 3% withdrawal rate is not very attractive to most investors nearing retirement, and that 1% difference implies that you’d need 25% more savings in order to enjoy the same income.
We think the 4% rule is still a good rule of thumb when planning ahead for retirement, but even the Trinity study acknowledged that retirees may need to adjust their withdrawals in retirement. The study concluded that its retirement calculations should be used solely as a planning guide and that people should expect changes both up and down along the way.
If you need help, call us at 1-800-763-8639. We can help you develop an effective, long-term retirement plan, and we can even implement it for you. It’s what we’ve been doing for nearly 50 years.