What It Means to Retire on the 4% Rule
Retiring on the 4% rule is a popular financial strategy that helps individuals determine how much money they need to save for a comfortable retirement. This guideline suggests that retirees can safely withdraw 4% of their retirement savings each year, adjusted for inflation, without running out of money over a typical 30-year retirement period. Understanding the 4% rule and its implications can help retirees achieve financial security and maintain their lifestyle in their later years. 1. Understanding the 4% Rule The 4% rule was derived from the Trinity Study , a research paper published in the 1990s by three professors from Trinity University. The study analyzed historical market data to determine a safe withdrawal rate that would allow retirees to sustain their nest egg over time. A. How the 4% Rule Works A retiree withdraws 4% of their total savings in the first year of retirement. Each subsequent year, the withdrawal amount is adjusted for inflation. The remaining funds contin...