Latest news with #4PercentRule
Yahoo
3 days ago
- Business
- Yahoo
Creator of the 4% Rule Shares His New Strategy To Retire Richer
The '4% Rule' has guided retirees for decades, but its creator, William P. Bengen, now says it's outdated. Trending Now: Check Out: In his new book, 'A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More,' Bengen introduces a more generous and flexible approach to retirement withdrawals, tailored to today's volatile economy. Here's how to retire richer, according to the man who wrote the rulebook. Choose the Right Retirement Withdrawal Rate It's important to be realistic about the withdrawal rate you choose. 'My research suggests that 'safe' withdrawal rates are closely correlated with stock market valuation and inflation,' Bengen told GOBankingRates. This means the higher the stock valuation, the lower your withdrawal rate should be and vice versa, and the higher the inflation rate, the lower your withdrawal rate should be and vice versa. 'The best time to retire is into a period of low stock market valuation and low inflation — neither of which apply to the current situation,' Bengen said. Read Next: Why You Can Safely Spend More Than 4% The '4% Rule' specifies a first-year withdrawal of 4% of your portfolio value, augmented by cost of living increases each subsequent year, similar to Social Security. 'Although this rule was recently upgraded to 4.7%, it is still too conservative for the current environment,' Bengen said. 'I recommend a rate between 5.25% and 5.5% for current retirees, although this could change based on stock market valuation and inflation expectations. The 100-year average is 7%, so we are still paying a price for high market valuations.' Stay Invested — Even During Market Downturns The stock market tends to trend upwards over time, so you shouldn't panic sell during downturns. 'Don't be scared out of stocks because of a bear market,' Bengen said. 'Those kinds of events are incorporated into the determination of your withdrawal rate.' If you tend to be more risk-averse, consider subscribing to a risk management service that recommends adjustments to stock exposure based on an assessment of market risk. 'This should reduce your losses, although the subsequent gains may also be reduced,' Bengen said. Protect Your Nest Egg From Inflation During levels of high inflation, it's important to reduce your spending as much as possible, especially when you are living on a fixed income. 'The lesson learned from the 1970s inflation surge was that cutting expenditures immediately can help preserve your nest egg,' Bengen said. 'Don't delay. You can always increase spending later.' More From GOBankingRates 5 Old Navy Items Retirees Need To Buy Ahead of Fall Mark Cuban Tells Americans To Stock Up on Consumables as Trump's Tariffs Hit -- Here's What To Buy This article originally appeared on Creator of the 4% Rule Shares His New Strategy To Retire Richer
Yahoo
07-07-2025
- Business
- Yahoo
3 Situations Where You Need to Ignore the 4% Rule
A popular strategy has savers withdrawing 4% of their nest eggs annually with adjustments for inflation. There are certain scenarios where the 4% rule doesn't make sense. It's important to customize your withdrawal strategy to your personal situation. The $23,760 Social Security bonus most retirees completely overlook › People who enter retirement with savings generally have to work hard to get that point. After all, your IRA or 401(k) isn't going to fund itself. But after pushing yourself to build up a nice amount of retirement savings, the last thing you want is for your nest egg to run out of money while you're still alive. That's why it's so important to establish a safe withdrawal strategy. Many financial experts will tell you to follow the 4% rule in that regard. With the 4% rule, you withdraw 4% of your savings balance your first year of retirement and then adjust future withdrawals based on inflation. Following the 4% rule gives you a strong likelihood of your money lasting for at least 30 years. It's a good plan in theory. But it won't work for everyone. And if any of these situations apply to you, you may not want to use the 4% rule. As mentioned above, the 4% rule is designed to help people's savings last for 30 years. But if you're retiring early, you may need to stretch your nest egg for 35 years, 40 years, or longer. Following the 4% rule in that scenario could increase your risk of running out of money. What withdrawal rate should you use in that case? It depends on your portfolio composition, income needs, and just how early you're retiring. It's best to work with a financial advisor to figure out a safe withdrawal rate that's customized to you. If you're retiring early, the 4% rule puts you at risk of depleting your savings. If you're retiring at a later age than the typical person, following the 4% rule won't necessarily pose a financial risk. But it could mean denying yourself larger withdrawals that could enhance your quality of life. Let's say you retire at age 75 and expect to need your nest egg to last for 20 years. In that situation, you may be perfectly fine to tap your savings to the tune of 5% per year or more. If you force yourself to stick to a 4% withdrawal rate, you could end up missing out on different luxuries and conveniences money can buy. The 4% rule assumes that your portfolio has a roughly even mix of stocks and bonds. But if you're someone who's very risk-averse, and your portfolio therefore consists mostly of bonds, then the 4% rule may not work for you. Of course, bond interest rates will also influence how well your portfolio holds up. But generally speaking, stocks are able to generate more portfolio growth than bonds. So if you're someone with 20% of your retirement portfolio in stocks and the remaining 80% in bonds, a 4% withdrawal rate may be too aggressive given your portfolio's likely performance during your senior years. Following a broad rule of thumb like the 4% rule may seem like an easy and convenient way to manage your nest egg. But it's not necessarily the optimal choice for you. Rather than commit to the 4% rule, use it as a starting point, but work with a financial professional to come up with a targeted withdrawal rate based on your retirement age, income needs, and investment mix. A more tailored approach could give you peace of mind and reduce your chances of running out of money. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. 3 Situations Where You Need to Ignore the 4% Rule was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
15-06-2025
- Business
- Yahoo
US boomers are using these 2 strategies to enjoy fat monthly cash flows — while their nest eggs stay protected
The 4% rule is pretty much the gospel for financial advisors and savvy savers. For decades, people planning for retirement have relied on this simple rule-of-thumb to calculate their ultimate financial target. The rule is a guideline that suggests retirees should withdraw 4% of their investment portfolio every year in retirement, with the option to make adjustments to account for inflation. This maximum withdrawal rate was believed to be a sure-fire method for stretching a senior's retirement income for 30 years or more. Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) But given how unpredictable the economy has been in 2025, the 4% rule might be insufficient if you're looking for long-term peace of mind. After all, the rule was created by financial advisor Bill Bengen all the way back in 1994 and relied on his analysis of stock market returns over the previous 30 years. Simply put, the 4% rule might be a little outdated in 2025. If you're looking for an alternative, the team at Vanguard recently offered two options. Here's a closer look at these updated retirement spending and withdrawal strategies, and why they could help you set a more realistic financial goal for retirement. Unlike the simple 4% rule, Vanguard's bucket strategy recommends splitting your assets into different categories depending on when you expect to spend the money. For instance, you could create an 'ultra-short-term' bucket that includes your checking account and emergency savings that can be tapped into for monthly living expenses. Another medium-term bucket could be set aside in relatively safe fixed income securities to meet spending needs — such as a home renovation — for the next two to three years. You can also use specialized tax-advantaged accounts, such as a Health Savings Account, to create a separate bucket for medical expenses. Finally, you can deploy the rest of your assets into long-term investments such as stocks or real estate to compound over time. By splitting your assets into different categories, you can adjust the risk-return profile on each so that they match the timeline of the expected expense. You can also customize these to meet your specific spending needs and lifestyle — for example, if you know you're facing major health concerns in the near-term, you can divert more of your wealth into that category. Simply put, this approach is more nuanced than the conventional 4% rule. That means it requires more planning — and perhaps the assistance of a financial advisor — to ensure you don't deplete your savings in retirement. Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says — and that 'anyone' can do it Another alternative to the 4% rule is the dynamic spending plan. Instead of simply assuming you will spend 4% of your assets every year in retirement, this strategy involves setting an annual budget based on how much your assets have earned over the previous year, how much inflation you expect, and what you want to spend money on in the year ahead. So, if your portfolio jumped 8% in value last year and inflation was at 2%, you can set a budget to spend 6% or less this year. You may also need to set a floor for annual spending if the stock market returns 0% or less in any given year. For instance, you could set a flat $40,000 budget for any down years in the stock market. In other words, you're not relying on an average estimate of stock market returns over several previous decades. Instead, you're setting a clear target for how much you want to spend every year based on the real returns and inflation you've experienced over the past twelve months. The advantage of this strategy is that it adapts to the economy and your personal circumstances in real-time. If the stock market had an exceptional year, you can spend more. If inflation was higher than expected, you can spend less. The upside is that your chances of running out of money in retirement are significantly lowered. Another upside is that this strategy allows you to create a customized financial target, which means you can potentially retire even if you have less than the $1.26 million that most Americans believe they'll need for financial freedom, according to Northwestern Mutual. The downside is that this strategy doesn't give you long-term visibility and needs effort and assessment on an annual basis. Again, hiring a financial advisor or using online tools to automate some of this process could help to make this a successful strategy for you. Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now This tiny hot Costco item has skyrocketed 74% in price in under 2 years — but now the retail giant is restricting purchases. Here's how to buy the coveted asset in bulk Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? Like what you read? Join 200,000+ readers and get the best of Moneywise straight to your inbox every week. This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Sign in to access your portfolio
Yahoo
15-06-2025
- Business
- Yahoo
US boomers are using these 2 strategies to enjoy fat monthly cash flows — while their nest eggs stay protected
The 4% rule is pretty much the gospel for financial advisors and savvy savers. For decades, people planning for retirement have relied on this simple rule-of-thumb to calculate their ultimate financial target. The rule is a guideline that suggests retirees should withdraw 4% of their investment portfolio every year in retirement, with the option to make adjustments to account for inflation. This maximum withdrawal rate was believed to be a sure-fire method for stretching a senior's retirement income for 30 years or more. Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) But given how unpredictable the economy has been in 2025, the 4% rule might be insufficient if you're looking for long-term peace of mind. After all, the rule was created by financial advisor Bill Bengen all the way back in 1994 and relied on his analysis of stock market returns over the previous 30 years. Simply put, the 4% rule might be a little outdated in 2025. If you're looking for an alternative, the team at Vanguard recently offered two options. Here's a closer look at these updated retirement spending and withdrawal strategies, and why they could help you set a more realistic financial goal for retirement. Unlike the simple 4% rule, Vanguard's bucket strategy recommends splitting your assets into different categories depending on when you expect to spend the money. For instance, you could create an 'ultra-short-term' bucket that includes your checking account and emergency savings that can be tapped into for monthly living expenses. Another medium-term bucket could be set aside in relatively safe fixed income securities to meet spending needs — such as a home renovation — for the next two to three years. You can also use specialized tax-advantaged accounts, such as a Health Savings Account, to create a separate bucket for medical expenses. Finally, you can deploy the rest of your assets into long-term investments such as stocks or real estate to compound over time. By splitting your assets into different categories, you can adjust the risk-return profile on each so that they match the timeline of the expected expense. You can also customize these to meet your specific spending needs and lifestyle — for example, if you know you're facing major health concerns in the near-term, you can divert more of your wealth into that category. Simply put, this approach is more nuanced than the conventional 4% rule. That means it requires more planning — and perhaps the assistance of a financial advisor — to ensure you don't deplete your savings in retirement. Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says — and that 'anyone' can do it Another alternative to the 4% rule is the dynamic spending plan. Instead of simply assuming you will spend 4% of your assets every year in retirement, this strategy involves setting an annual budget based on how much your assets have earned over the previous year, how much inflation you expect, and what you want to spend money on in the year ahead. So, if your portfolio jumped 8% in value last year and inflation was at 2%, you can set a budget to spend 6% or less this year. You may also need to set a floor for annual spending if the stock market returns 0% or less in any given year. For instance, you could set a flat $40,000 budget for any down years in the stock market. In other words, you're not relying on an average estimate of stock market returns over several previous decades. Instead, you're setting a clear target for how much you want to spend every year based on the real returns and inflation you've experienced over the past twelve months. The advantage of this strategy is that it adapts to the economy and your personal circumstances in real-time. If the stock market had an exceptional year, you can spend more. If inflation was higher than expected, you can spend less. The upside is that your chances of running out of money in retirement are significantly lowered. Another upside is that this strategy allows you to create a customized financial target, which means you can potentially retire even if you have less than the $1.26 million that most Americans believe they'll need for financial freedom, according to Northwestern Mutual. The downside is that this strategy doesn't give you long-term visibility and needs effort and assessment on an annual basis. Again, hiring a financial advisor or using online tools to automate some of this process could help to make this a successful strategy for you. Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now This tiny hot Costco item has skyrocketed 74% in price in under 2 years — but now the retail giant is restricting purchases. Here's how to buy the coveted asset in bulk Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? Like what you read? Join 200,000+ readers and get the best of Moneywise straight to your inbox every week. This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
