The 4% Rule

Is this retirement benchmark right for you?


The 4% Rule has become an accepted rule of thumb in the retirement planning community. The basic premise is straightforward: by withdrawing 4% of your retirement nest egg in your first year of retirement and adjusting that amount for inflation afterward, you should have enough money to last through your retirement years.

Recent instability in the economy caused interest rates to fall to near-record lows and persuaded some economists and financial planners to question the 4% Rule. They began to debate whether retirees would use up their savings too quickly in an environment where returns on their investments weren't able to keep up with the withdrawal pace established under the Rule.

Given that returns from mutual funds and the stock market are unpredictable, many experts suggest a more dynamic approach, whereby retirees adjust their withdrawals on an annual basis, based on market performance. 

The 4% Rule is still often advocated as a good starting point, but other factors like your retirement age can also impact its applicability. For example, those who retire at 50 need to plan for many more years of retirement. This strategy may mean that withdrawing 4% in the beginning is too high, and perhaps they should start at 3%. Conversely, those who retire at 65 may be able to afford to withdraw closer to 5% from the start.

At Access Credit Union, our Wealth Advisors and Investment Specialists work to help you achieve each of your financial goals with consideration for your overall financial situation. If you'd like help with your retirement plan, we would be happy to discuss it with you. Contact us today!