This is a question that has been much debated and lately, there’s been some new thinking on this subject. In the early 1990s, the “4%” rule originated and it says that if you withdraw 4.5% of your retirement savings each year, adjusted for inflation, it should last 30 years.
While the 4% rule is a good starting point, it may not meet the needs of retirees these days. With today’s investment environment where stocks and bonds generating lower returns overall than they have historically and the longer life spans of today’s retirees, your retirement assets need to last longer than ever.
The three most important factors that will help determine how much you can withdraw during retirement are: Time horizon, asset allocation and volatility of the markets. If you plan to retire early or if your family has a history of longevity you may need to lower the withdrawal rate to ensure it lasts a lifetime. If you’re too conservative with your asset allocation, you might not be able to generate the types of returns to keep up with inflation and your withdrawal rate may be lower. Lastly, if you’re unlucky or don’t have a flexible retirement date, negative returns in the early years can have a dramatic impact on how much you can take and how long it will last.
At Hyre Personal Wealth Advisors, our comprehensive planning-based approach enables our advisors to answer this question for your situation. We model and test the factors in which you’re flexible and the ones which you’re not to arrive at a customized plan that provides confidence and certainty to meeting your retirement goals.