Retirement: The 4% Rule

Have you/could you retire on the 4% percent rule?

By definition:
The 4% rule is a rule of thumb used to determine how much a retiree should withdraw from a retirement account each year. This rule seeks to provide a steady income stream to the retiree while also maintaining an account balance that keeps income flowing through retirement. Experts consider the 4% withdrawal rate to be safe, as the withdrawals will consist primarily of interest and dividends. The 4% rule helps financial planners and retirees set a portfolio's withdrawal rate. Life expectancy plays an important role in determining if this rate will be sustainable, as retirees who live longer need their portfolios to last longer, and medical costs and other expenses can increase as retirees age.

While prudent, I personally think there are too many variables in each person's situation to make a blanket 4% rule. I think you adjust as the retirement years progress.

 

I did not plan on what percent I should take each month. Having a financial advisor definitely was the leading factor in being able to retire at 54.

But as it turned out, the first 5 years of retirement we lived on about 6% of our nest egg per year. Now (6th year), we're living on about 4% of our nest egg. In 5 years, when SS and annuities kick, in we'll be living on about 1-2% of our nest egg. That includes gambling and traveling money.

We have no kids to leave it to, so I guess we'll have to ramp it up in a few years. I was trained at a young age to be frugal...it disturbs me greatly to see food thrown out or to spend wantonly on stupid things like $18 drinks at a bar when they're free at a slot machine where I'd rather be anyway. I don't like material things...they're just balls and chains that create worry about maintenance and loss. To me, a great retirement is a carefree life.

 

Thats all good but what am I supposed to spend that $8 on?

 

I agree that a the 4 percent rule is a blanket statement and not always true BUT you always have to have a baseline to start from, and then based on other factors like lifestyle, risk tolerance, life expectancy, you can adjust. I wont be able to retire for another 30 years so I am sure things will change by then. Some people pull all their money out of stocks and what not when they retire, some keep investing, I believe you should keep investing in safer thinks like bonds even after you retire.
When I retire I plan on spending more money overall than I do now, with travel and new hobbies with more time on my hands (providing my body holds up)

 

Everyone's retirement will be different. Depending on life choices and just plain fate.

The same two people with identical incomes will sometimes have different retirement assets.

One may be wealthy monetary wise due to investments, foregoing having children, and being frugal.

The other will be on minimal pension, modest savings and investments, but wealthy in another way when he looks into the eyes of his children and children's children.

Nothings right or wrong with both scenarios, it all comes down to life choices. But the 4% rule is a good rule of thumb.

What is sad is for a growing number of people, there won't be a retirement portfolio to apply the 4% rule.

 

We were savers our entire lives. Not cheap, but frugal and every paycheck the max went into the Ira, 401 & Roth as they were introduced.

So I retired at 55 and my wife quit her job at 52. I have now been retired almost 12 years.

Our nest egg has gone up by 42%. About 45/45 mix of stock and bond mutual funds. If you throw out 2008, the horrible year and my first year of retirement in which my investments lost 18% and go from 2009 to last year, nest egg +22%. Monthly spending averages $~8,000.

No kids, 10 flights a year. Eat out three times a week. Yes, retirement has been very good, but saving early and often is the key.

The nephews and nieces will be happy when we kick off. lol.

Edit: I should add neither of us ever made over 55k and that was our last year.

 

And at the opposite end of that spectrum are those who will be answerin' the bell until they draw their last breath. I 'retired' from IT back in '10 and Cindy waved farewell to Hillsborough County Public Schools - after 35 years - back in June, so we haven't 'adjusted' to full blown retirement. As mentioned above, everyone's situation is different.

 

been retired since 2013, for some reason we have not needed to touch any of our retirement accounts. just live on state pension.

 

I like your style! That's how I want to retire. I'm 30 so I still have a while lol.

 

In the spirit of the thread, found the website esimoney.com which has been conducting interviews with retired people and asks them how old they were when they retired, how tough the transition was, what their net worth is, and their monthly/annual spending habits.

 

Rules of thumb are not rules, they are guidelines.

Handy for figuring out "do I have enough to retire and spend X a year?". But just because you have enough doesn't mean you should retire, just because you retire doesn't mean you can't have sources of income, and just because you can spend x each year does not mean that you will. 4% is not foolproof. But there is usually a decent buffer in between the amount people feel they want/need for year and what they really need, too.

 

I won't be following the 4% rule.
There is a built-in presumption to that rule - assuming that a reduction in principal is, somehow, a "bad" thing.
My plan is to retire at 65 & live 100% off of my 401K account until I reach 70.
Then, start collecting my maximum benefit from Social Security & reducing my 401K withdrawals by that Social Security amount.

I've done the math - assuming a continual 5% average annual return on my 401K investments & a modest IRA account, (both currently averaging over 13% annually for the past 10 years), & the wife drawing her 32% of my Social Security benefit when she turns 62 (& I'm 70), our monthly retirement income will be what it will be, inflation-adjusted, identical or higher when the wife turns 100 as it is on the day I turn 65.
In Texas, we can get a "lock" on our annual property tax expense, and we have no mortgage or any other debt.

I figure that, so long as I can provide a steady, decent income to get my wife to age 100, that's OK.
...and if we get another 2008-style meltdown along the way? I'll reverse-mortgage the house to make up for any shortfall.
Kids will get whatever's left when the wife passes on.

 

I have been saving Wisconsinbly.
I plan to someday draw on my teacher retirement account, a few other investments, and a series of jars buried in the backyard.

I would like to find a job to keep me busy in my golden years. Perhaps a gig resetting the yodeling dude on TPIR...



RICHARD

 

Interesting thread - thanks.....I read all the retirement threads.
I'm close to retiring......depends on my body.
Could have to retire next week ?......or 4 years from now ?
But all these Retirement Formulas are .......?........
They seem for ?......not most people ?......how do I say it ?
But......
Thanks again.......I read all of them !

 

I was laid off in 2008 during the financial meltdown. I worked for a very large bank in the technology division. I was at an awkward age for finding new work and of course there is that discrimination against aged people. I had a very good severance package and at that time I could also collect unemployment. I was actually making more money the first year after being unemployed than I ever made before. Then the severance and unemployment stopped. About a year later I started taking out a little less than 4% from my IRA and later started taking SS just before I was 63. Actually because of my thrift in saving always the max into my 401K and putting money in a stock account put me in my position. Let me say in 2000 I lost 40% durning that market collapse and in 2007 I was up to when I was before the 2000 crash. In 2008 I lost 40% walking out the door to unemployment. Since then my money has grown and I actually have more money in my IRA now than when I started collecting.
I think 4% is a good number but the question is 4% of what number? That really is he variable. Some people can some can't. Based on my current assets it should work for me - unless I gamble way too much. RMD kicks in at 70 1/2 - really 71. So I'm there now anyway.

 

They are not letting me retire!

 

DH and I both retired around 60 and took our SS at 62. We're 67 now. DH has not touched his retirement, but I use around 1% a year of mine. A couple of things we did allowed us to retire early and not have to scrape. I put our first house on a 20 year loan and whenever we got extra money it went toward the principal on the house. (tax returns mainly) Once you get (and keep) that house paid off it gives you all sorts of freedom. Every time we moved because values went up we always got something nicer, but with a little extra cash, still no payment. I financed the first car I ever bought and once that was paid off, I just kept making those car payments into my savings account. So whenever I bought a new car I already had enough to pay for it. Also bought savings bonds every payday in addition to making IRA contributions. You need to plan early. Friends who refinanced every time they had a little equity and then just pissed the money away are wishing now that they didn't still have that big fat house payment.

Sometimes I have to remind myself that it's okay to spend money frivolously (for me that means more than .88 a spin) because like my brother always says, you can't take it with you.

 

Smokey the Bear says "Only YOU can prevent forest fires....."

Electroguy says "Only YOU can decide when to retire...."


What a fucked up analogy.....

 

THIS GUY FOLLOWS THE 70/30 RULE. SLEEPS 70% OF THE TIME AND EATS 30% OF THE TIME.

 

I love the .88 cents a spin reference.