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Why the 4% Rule For Retirement Might Not Work

Why the 4% Rule For Retirement Might Not Work

Have you heard of the 4% rule for retirement planning?

Basically, the idea was based on a study completed in 1994 that found that you could withdraw 4% of your retirement nest egg and adjust for inflation each year and your money should be able to last you thirty years.

You can read more specifics about this theory in this CNN article.

But this thinking is starting to get questioned as to whether it’s really feasible.

Here are some of the reasons why;

We’re living longer. Given our longer life expectancy, planning for thirty years of retirement may in fact actually now be closer to forty or fifty.

Financial returns are not as high as they used to be. Investments are not providing the same level of returns as they did when the 4% retirement rule was developed.

The 4% rule does not adjust based on how well your investments are doing. If the markets are doing well, you could withdraw more. If they are not then your withdrawals should be adjusted. The 4% rule is based on a flat rate.

Here are some more insights as to some of the the challenges with this rule. The following video features Wade Pfau, professor of Retirement Income at American College and founder of retirementresearcher.com

Just something to consider as you financially plan for your retirement.

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