What’s a Safe Withdrawal Rate in Retirement?

Financial planning covers a multitude of objectives, but for most people the main focus of a financial plan is retirement. So the question of how and at what rate retirees can draw on their assets to retire without risking running out of money is a major issue.  From Wealth Management.com

The Four Percent Rule stems from landmark financial planning research in the 1990s — William Bengen’s 1994 article in the Journal of Financial Planning on sustainable rates, and a subsequent influential study by three researchers at Trinity University. The aim was to identify a sustainable withdrawal rate that allows retirees to meet their spending goals while not running out of assets during their lifetimes.

But experience over the last decade has shaken the faith of many advisors in the 4% rule. The combination of ultra-low interest rates and a stock market that has gyrated wildly but has never reached the levels it achieved in the year 2000 has made it difficult to remain faithful to a rule that was created at a time when the stock and bond markets had been rising steadily for nearly two decades.The new ideas put forward to prevent running out of assets include annuities, varying the rate at which retires spend, working longer, saving more and using more exotic financial instruments.

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