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The Four Percent Rule Formula:
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The Four Percent Rule is a retirement planning guideline that suggests retirees can safely withdraw 4% of their investment portfolio annually without running out of money over a 30-year retirement period. This rule helps determine sustainable spending from retirement savings.
The calculator uses the Four Percent Rule formula:
Where:
Explanation: This calculation provides a conservative estimate of how much you can withdraw annually from your retirement portfolio while maintaining a high probability of not depleting your funds over a 30-year retirement.
Details: Determining an appropriate withdrawal rate is crucial for retirement planning. The 4% rule provides a balanced approach that considers market volatility, inflation, and longevity risk while aiming to preserve capital throughout retirement.
Tips: Enter your total portfolio value in your local currency. The default withdrawal rate is set to 4% (0.04), but you can adjust this based on your risk tolerance and retirement timeline. All values must be positive numbers.
Q1: Is the 4% rule still valid today?
A: While debated, the 4% rule remains a useful starting point. Some experts suggest 3-3.5% may be more appropriate in today's low-interest rate environment.
Q2: Does this account for inflation?
A: The traditional 4% rule includes annual inflation adjustments, but this calculator shows the initial withdrawal amount only.
Q3: What types of portfolios work best with this rule?
A: The rule was originally tested with a 50-60% stock and 40-50% bond portfolio, but should be adapted to individual risk tolerance.
Q4: How long will my money last with 4% withdrawals?
A: Historically, a 4% withdrawal rate had a 95% success rate over 30-year periods, but individual results may vary.
Q5: Should I adjust my withdrawal rate as I age?
A: Many financial planners recommend dynamic withdrawal strategies that adjust based on portfolio performance and age.