Why the famous 4% withdrawal rule for retirement may not be the answer
The modern economy is too dynamic to be governed by a fixed number derived from one country’s unique historical bull run
SIMPLE ideas to address a complicated problem tend to have staying power. For decades, the 4 per cent rule has served as the anchor point for retirement planning, promising an easy and elegant solution to one of life’s most perplexing retirement puzzles: How much is enough?
The rule says a retiree can safely withdraw 4 per cent of their initial retirement portfolio, adjusted annually for inflation, for 30 years. This offers a gift of certainty.
But certainty is often the enemy of truth. The 4 per cent rule is not a timeless law of physics; it is predicated on a specific and exceptional time in American financial history. Relying on it today ignores the reality of the vastly different investment dynamics across time, geographies and even longevity.
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