Should You Follow the 4% Retirement Rule?

The 4% rule derived from a 1994 study by William Bengen in which he found that 4% was the highest rate that held up over a period of at least 30 years. Here’s how the rule works: You start by withdrawing 4% of your nest egg and then adjust the withdrawal amount to keep pace with inflation. So should you follow the 4% rule? Walter Updegrave on CNN Money recommend to start out with a reasonable withdrawal rate between 3% to 4% to support you 30 or more years in retirement. “You can go with a higher rate or a lower one. Just remember that the lower your initial rate, the less income you’ll have to meet your spending needs and the more likely you could end up with a big retirement account balance late in life. Conversely, starting with a higher rate will provide a more comfortable lifestyle, but could subject you to a greater risk of outliving your savings. Once you’ve decided on a withdrawal rate, you should be ready to boost or cut back your withdrawals based both on your spending needs and how much your nest egg’s value is rising or falling.” (cnn.com)