1 Reason I Don't Trust the 4% Rule to Stretch My Money in Retirement, and What I'll Be Doing Instead

Whether you kick off your senior years with a nest egg worth $300,000 or $2 million, there’s unfortunately always the worry that your money might run out. That’s why financial experts have long advised savers to follow the 4% rule in managing their retirement funds. But while that rule is a decent starting point, it’s not one I plan to follow.

I’d rather play things a bit safer

Under the 4% rule, you start by withdrawing 4% of your savings balance your first year of retirement. You then adjust subsequent withdrawals for inflation. Stick to that plan, and there’s a strong chance your nest egg will last 30 years.

A person at a computer.

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But I have a couple of problems with the 4% rule. First, it assumes a fairly even mix of stocks and bonds, which not all retirees have. Also, it relies on fairly strong bond yields. And while savers may be getting those today, who’s to say what they will be years down the road?

That’s why I plan to tap my savings more conservatively. I haven’t landed on a specific withdrawal rate yet, but my thinking is to go with 2% to 3%.

I also hope to work in some capacity during retirement — as much for the sake of keeping busy as for the money. So depending on how that plan shakes out, I may not need to withdraw 2% to 3% of my savings each year.

I plan to invest in income-generating assets

Another thing I hope to do in retirement is set myself up with assets that generate income, including dividend stocks, REITs, and municipal bonds.

If you have enough income-generating investments in your portfolio, you may be able to live off of your yearly gains in retirement, leaving your principal untouched. That’s a situation I’d love to land in.

Ultimately, to decide on the right retirement withdrawal rate for you, you’ll have to look at how your money is invested, what your expenses amount to, and what other income sources you have available. But don’t automatically assume that the 4% rule is the perfect solution.

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