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4 Percent Rule Formula:
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The 4 Percent Rule is a retirement planning guideline that suggests retirees can safely withdraw 4% of their portfolio value annually without running out of money over a 30-year retirement period. This rule was developed based on historical market data and portfolio longevity studies.
The calculator uses the 4 Percent Rule formula:
Where:
Explanation: This calculation provides the maximum annual withdrawal amount that should sustain your portfolio for 30 years based on historical market performance.
Details: Proper withdrawal planning is essential for retirement security. The 4% rule helps prevent retirees from depleting their savings too quickly while providing a sustainable income stream throughout retirement.
Tips: Enter your total retirement portfolio value in dollars. The calculator will compute your safe annual withdrawal amount. Ensure your portfolio value is current and includes all retirement accounts.
Q1: Is the 4% rule guaranteed to work?
A: While based on historical data, the 4% rule is not a guarantee. Market conditions, inflation, and individual circumstances can affect portfolio longevity.
Q2: Should I adjust withdrawals for inflation?
A: Yes, the original 4% rule includes annual inflation adjustments. You would increase your withdrawal amount each year to maintain purchasing power.
Q3: Does this work for early retirement?
A: For retirement periods longer than 30 years, a lower withdrawal rate (3-3.5%) may be more appropriate to ensure portfolio longevity.
Q4: What types of portfolios does this apply to?
A: The rule was designed for balanced portfolios (typically 50-75% stocks, 25-50% bonds) and may need adjustment for different asset allocations.
Q5: Can I withdraw more than 4%?
A: Higher withdrawal rates significantly increase the risk of portfolio depletion. Conservative investors often use 3-3.5% for added safety.