The theme this week on the Retirement Quick Tips Podcast is: The New 3.3% Rule For Retirement.

Today, I’m explaining the concept of the 4% rule to create a foundation for what we’ll be talking about for the rest of this week, which is new research out from Morningstar that recommends the 4% rule be lowered to 3.3% withdrawal amount for retirement. 

The 4% Rule is a short-hand rule of thumb that helps you calculate how much of your portfolio you can safely withdraw in retirement without running out of money.

If you apply the 4% rule to your retirement savings, you would take your portfolio value and multiply that amount by 4%...so if you get to retirement with $1 million saved, and multiply that $1million by 4%, you get $40,000. So according to the 4% rule, you can withdraw $40,000 from your portfolio in year 1 of retirement, then increase that withdrawal amount for inflation each year without worrying too much about running out of money.

4% is considered a safe withdrawal rate that has been around for over 25 years and is backed by some well-documented research. 

An important question to consider is: Can you rely on the 4% rule? Is this actually a reliable rule of thumb for planning for your retirement? 

The short answer is that it does work well...sometimes. The long answer is that retirement is too  complex to rely on a rule of thumb - taxes, inflation, your returns in retirement vary widely from year to year, and you may be unlucky enough to retire in the midst of a big stock market downturn - these are all circumstances that will make the 4% rule less useful or blow it out of the water all together. 

And that’s part of the reason for the downward revision to the rule, that I’ll talk more about tomorrow. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance