In retirement planning there is something called the 4% rule. This was the general rule of thumb that you could safely withdraw 4% of your portfolio each year without completely depleting it. This has been a generally accepted rule for many years but lately planners are starting to question it’s wisdom.
The reason is two fold
1) Life expectancy has increased. Meaning hopefully your money will have to last longer.
2) Expected yields have become lower. To quote CNBC “Low interest rates also complicate the picture for savers. A one-year certificate of deposit came with a yield of just 0.28 percent, on average, through most of September, according to Bankrate. That’s hardly enough to generate much retirement income.”
What does this mean for retirees?
1) The 4% rule is still a good starting point but cannot be considered completely safe.
2) It is important to reevaluate your plan frequently
3) Remember there are also laws about required minimum distributions (RMDs) from certain retirement accounts. These penalties for not taking enough out of a tax deferred retirement account can be substantial.
4) It is a good idea to consult with your financial planner or tax professional.