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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 investment portfolio annually, adjusted for inflation, to ensure your savings last throughout retirement. This rule was popularized by financial planner William Bengen in the 1990s.
The calculator uses the Four Percent Rule formula:
Where:
Explanation: This calculation determines how much you can safely withdraw from your retirement portfolio each year without depleting your savings too quickly.
Details: The 4% rule provides a sustainable withdrawal strategy that has historically shown a high probability of success over 30-year retirement periods, based on historical market data and inflation adjustments.
Tips: Enter your total portfolio value in your local currency. The calculator will compute your safe annual withdrawal amount based on the 4% rule.
Q1: Is the 4% rule guaranteed to work?
A: While historically successful in most market conditions, the 4% rule is not guaranteed. Market volatility, inflation, and individual circumstances can affect outcomes.
Q2: Should I adjust for inflation?
A: Yes, the original 4% rule includes annual inflation adjustments to maintain purchasing power throughout retirement.
Q3: Does this work for early retirement?
A: For longer retirement periods (40+ years), a lower withdrawal rate (3-3.5%) may be more appropriate to ensure portfolio longevity.
Q4: What types of portfolios work best with this rule?
A: The rule was originally tested with balanced portfolios (50-75% stocks, remainder in bonds) and works best with diversified investments.
Q5: Are there limitations to the 4% rule?
A: The rule assumes consistent market returns and may need adjustment during periods of high market volatility or low interest rates.