All About The 4% Rule of Withdrawal
22 Dec 2022
The Four Percent Rule is an enabler for retirees to decide what percentage amount a retiree should withdraw from their retirement funds each year. The Rule aims to keep a steady income stream for retirees while maintaining an adequate corpus for the future.
Understanding the 4% Rule
The Rule is to be treated strictly as a guideline for setting a withdrawal rate from investors’ portfolios. The rule was created using the historical data of stocks and bond markets keeping in mind a retirees present and future financial needs.
One’s life expectancy is key determinant of the Rule. The longer retiree live, the more money they need and hence 4% might not suffice the requirement.
The Rule recommends maintaining a balanced portfolio of 50% in equities and 50% in low to medium term bonds and cash. If your portfolio looks different, the Rule may need adjusting.
The Rule is simple to follow but given that every retiree has specific needs and goals and hence would need some degree of modification on a case-to-case basis.
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