Here's a piece from Daily Finance that says the 4% rule is obsolete. The details:
The common wisdom that a 4% annual withdrawal rate is the safe way to avoid outliving your money is increasingly coming under fire. In fact, it may well become a thing of the past.
The theory was simple: If you spent a maximum of 4% per year of your retirement funds, the decline in principle will be slow enough that your money would last as long as you did. Though the percentage seems modest and the reasoning sound, this 4% rule ignores two factors that have become increasingly, glaringly relevant: first, market volatility, which has battered retirement savings over the last decade, and second, inflation, the silent force that erodes purchasing power year after year.
So what is the answer? Here's what they suggest:
Retirement planning should always be individualized: Rules of thumb like the 4% withdrawal rate don't take into account variables in lifestyle, nor can they account for elements like market volatility and inflation.
Here's my take on this:
- I always prefer the specific over the general when it comes to managing money and especially when it comes to retirement planning. When I updated my retirement plan, I made specific estimates of both expenses and income to get it to be as on target as possible.
- If you want to do the same, here are six essential questions you need to answer to determine your retirement number.
- I really hate the "you PROBABLY will have enough money until you die but there's a possibility you may not" line of thinking/planning. That's why I prefer what I call the safest retirement. It's what I'm working towards.
- If you are really, really, really into this topic (of how 4% came to be the standard and why it's not a safe figure to use), check out Financial Mentor's post titled Are Safe Withdrawal Rates Really Safe?
What are your thoughts on the subject?