1. What is the 4% Withdrawal Rule?

The 4% withdrawal 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.

2. How Does the Calculator Work?

The calculator uses the safe withdrawal formula:

Where:

• \( Portfolio \) — Total retirement portfolio value in dollars
• \( 0.04 \) — Safe withdrawal rate (4%)

Explanation: This calculation provides the annual withdrawal amount that, when adjusted for inflation each year, should sustain your retirement savings for approximately 30 years.

3. Importance of Safe Withdrawal Rate

Details: Using a safe withdrawal rate helps prevent retirees from depleting their savings too quickly while maintaining a consistent standard of living throughout retirement.

4. Using the Calculator

Tips: Enter your total retirement portfolio value in dollars. The calculator will compute your safe annual withdrawal amount based on the 4% rule.

5. Frequently Asked Questions (FAQ)

Q1: Is the 4% rule guaranteed to work?
A: The 4% rule is based on historical market data and is not a guarantee. It assumes a balanced portfolio and 30-year retirement timeframe.

Q2: Should I adjust for inflation?
A: Yes, the 4% rule typically includes annual inflation adjustments to maintain purchasing power.

Q3: What if I have a longer retirement?
A: For retirements longer than 30 years, a lower withdrawal rate (3-3.5%) may be more appropriate.

Q4: Does this account for taxes?
A: No, the calculation shows gross withdrawal amounts. You'll need to account for taxes based on your specific situation.

Q5: What portfolio allocation is assumed?
A: The original 4% rule study assumed a 50-75% stock allocation, but individual circumstances may vary.