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Four Percent Rule Formula:
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The Four Percent Rule is a retirement planning guideline that suggests withdrawing 4% of your portfolio value annually, adjusted for inflation, to ensure your savings last throughout retirement. This rule was popularized by the Trinity Study and is widely used in financial planning.
The calculator uses the Four Percent Rule formula:
Where:
Explanation: This calculation provides the initial safe withdrawal amount for the first year of retirement, which should then be adjusted annually for inflation.
Details: The 4% rule helps retirees balance their need for income with the preservation of their investment portfolio. It aims to provide sustainable income while minimizing the risk of depleting retirement savings too quickly.
Tips: Enter your total portfolio value in your local currency. The calculator will compute the annual safe withdrawal amount based on the 4% rule. Ensure you input a positive portfolio value.
Q1: Is the 4% rule guaranteed to work?
A: The 4% rule is based on historical market data and has a high success rate over 30-year retirement periods, but it's not a guarantee. Market conditions and individual circumstances may require adjustments.
Q2: Should I adjust for inflation each year?
A: Yes, the traditional 4% rule includes annual inflation adjustments to maintain purchasing power throughout retirement.
Q3: What if my retirement is longer than 30 years?
A: For longer retirement periods, a lower withdrawal rate (3-3.5%) may be more appropriate to ensure your portfolio lasts.
Q4: Does this work for all asset allocations?
A: The rule was originally based on a 50-60% stock allocation. More conservative or aggressive portfolios may require different withdrawal rates.
Q5: Should I include Social Security and pensions?
A: The 4% rule applies to your investment portfolio only. Social Security, pensions, and other guaranteed income sources are separate from this calculation.