There is nothing that worries retirees more than the fear that they will outlive their money. There has been a great deal of interest in how much a retiree can take from his investments “safely.” The 4% Rule was based on analysis done by William Bengen, a Financial Planner who published an influential paper in the Journal of Financial Planning in 1994. Simply put, the “Rule” states that
A person entering retirement could begin by taking up to 4% of their initial portfolio value, adjusting it each year for inflation, without fear of outliving their money
His analysis assumed that a person would begin taking a distribution from his portfolio at retirement and live 30 years.
The “4% Rule” has been widely used by people specializing in retirement planning. There have been quite a number of articles both supporting and questioning if this is still a good way for people to manage their retirement income. We believe that it’s a good starting point because Bengen’s analysis is based on a study using rates of return that include some of the worst financial-markets crises in U.S. history.
In many cases, retirees don’t need to draw down their portfolios at 4%. Many want to leave a legacy for their heirs. Bengen’s analysis also assumes that the client retires in their mid-60’s and has an average life-span. Each individual is different and has different objectives. We are happy to respond to your questions on retirement investing.