Tags: Withdrawal | Rule | Retirement | Investing

CNBC: 4 Percent Annual Withdrawal Rule for Retirement No Longer Holds

By    |   Tuesday, 31 March 2015 06:00 AM


For years a rule of thumb for retirement has been that you can safely withdraw 4 percent of your investment portfolio for spending each year and never deplete your investment portfolio.

But that rule doesn't hold anymore, experts say. Current rates of investment return mean the 4 percent method "gives you a 15 to 30 percent chance that you will run out of money," David John, senior strategic policy advisor at the AARP Public Policy Institute told CNBC.

So how can you come up with a drawdown rate? It's not easy. Few retirement spending calculators are available, CNBC reports. "When it comes down to retirement income, you can find annuity calculators, but you really can't find anything that's more complex," John said.

In general, rules of thumb are very convenient for planning your retirement finances, but they also are often wrong. So you need to take any rule you hear with more than a grain of salt.

Tom Sightings of U.S. News & World Report lists several myths concerning retirement finances.

  • "Social Security will pay your bills. Social Security alone probably won't be enough to provide a comfortable retirement," he writes. "The average Social Security retirement benefit is $1,328 a month. Do you really think you can live on $15,936 per year?" Sightings asks.
  • "Inflation is low, so don't worry about it." True, consumer prices actually declined 0.1 percent in the year through January, the first 12-month fall since October 2009. "But remember the 1970s and 1980s, when inflation more typically came in at 5 percent?" At some point inflation will rebound, possibly during your retirement.
  • "Maybe you'll receive an inheritance. The key word is maybe."

This information doesn't have to frighten you, as Sightings notes. Just make sure that any rule you follow applies to your own unique circumstances. And when it comes to spending, remember that life spans are constantly expanding. So watch those pennies.

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For years a rule of thumb for retirement has been that you can safely withdraw 4 percent of your investment portfolio for spending each year and never deplete your investment portfolio.
Withdrawal, Rule, Retirement, Investing
338
2015-00-31
Tuesday, 31 March 2015 06:00 AM
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