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Rule of 4 Formula:
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The Rule of 4, also known as the 4% rule, is a retirement planning guideline that suggests retirees can safely withdraw 4% of their portfolio annually without running out of money over a 30-year retirement period.
The calculator uses the Rule of 4 formula:
Where:
Explanation: This calculation provides the annual safe withdrawal amount that should sustain your retirement portfolio for approximately 30 years based on historical market data.
Details: Determining an appropriate withdrawal rate is crucial for retirement planning to ensure your savings last throughout retirement while maintaining your desired lifestyle.
Tips: Enter your total retirement portfolio value in dollars. The value must be greater than zero. The calculator will compute your annual safe withdrawal amount.
Q1: Is the 4% rule guaranteed to work?
A: The 4% rule is based on historical market data and is not a guarantee. It has worked in most historical scenarios but may need adjustment based on market conditions and individual circumstances.
Q2: Should I adjust the withdrawal rate over time?
A: Many financial advisors recommend adjusting withdrawals based on portfolio performance and inflation. Some use a dynamic withdrawal strategy rather than a fixed percentage.
Q3: Does this account for inflation?
A: The traditional 4% rule includes an annual inflation adjustment after the first year of retirement.
Q4: What if I have a longer retirement horizon?
A: For retirement periods longer than 30 years, a lower withdrawal rate (3-3.5%) may be more appropriate to ensure portfolio longevity.
Q5: Does this work for all portfolio types?
A: The 4% rule was originally based on a balanced portfolio of stocks and bonds. Different asset allocations may require different withdrawal rates.