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Four Percent Rule Formula:
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The Four Percent Rule is a retirement planning guideline that suggests retirees can safely withdraw 4% of their initial retirement portfolio each year, adjusted for inflation, without running out of money over a 30-year retirement period.
The calculator uses the Four Percent Rule formula:
Where:
Explanation: This rule is based on historical market data showing that a 4% withdrawal rate has a high probability of sustaining a retirement portfolio for 30 years.
Details: Determining a safe withdrawal rate is crucial for retirement planning to ensure that retirees don't outlive their savings while maintaining their desired lifestyle.
Tips: Enter your total retirement portfolio value in your local currency. The calculator will compute the annual withdrawal amount you can safely take according to the 4% rule.
Q1: Is the 4% rule guaranteed to work?
A: The 4% rule is based on historical data and has a high success rate, but it's not guaranteed. Market conditions, inflation, and individual circumstances can affect outcomes.
Q2: Should I adjust for inflation?
A: Yes, the traditional 4% rule includes annual inflation adjustments to maintain purchasing power throughout retirement.
Q3: Does this work for early retirement?
A: For retirement periods longer than 30 years, a lower withdrawal rate (3-3.5%) may be more appropriate to ensure portfolio longevity.
Q4: What types of portfolios does this assume?
A: The rule was originally based on a balanced portfolio of 50-75% stocks and 25-50% bonds.
Q5: Are there limitations to this rule?
A: The rule may not account for sequence of returns risk, changing market conditions, or individual spending patterns and healthcare costs.