Revisiting the 4% Rule
(Vanguard,
August 29, 2012)
The
authors from Vanguard remind us that the 4% Rule isn't really a simple
rule--the 4% rate of withdrawal needs to be adjusted for life expectancies
different from 30 years and different investment mixes (as well as
inflation after retirement). They also note that it is
unlikely that retirees actually follow the 4% rule for their entire
retirement, stating, "more realistically, retirees continue to monitor
their portfolios and spending, adopting some level of flexibility
to account for changes in market returns and unplanned spending
needs."
The
withdrawal rates contained in Figure 2 of the Vanguard paper
are reasonably consistent with withdrawal rates using the
spreadsheet on this website with assumptions of 5% investment return, 3%
inflation, no annuity income and no amounts left to heirs. Of course,
retirees with annuity income and/or plans to leave significant amounts to
heirs may have to make additional adjustments to the
Vanguard withdrawal rates shown in Figure 2. Alternatively, we
would suggest that you simply use the spreadsheets and
methodology contained in this website.