What Is a 4% Withdrawal Rate? How It Might Haunt Your Retirement

There's a 4% withdraw rule that applies in the first year of retirement. But you don't need to follow it if you are not in the situation of having to have it. Stan Honda/AFP via Getty Images

A four percent withdrawal rate is a common rule of thumb when planning for retirement. But what does that mean? And more importantly, is it right for you? This article will discuss the four percent withdrawal rate and how it might impact your retirement planning.

What is a Safe Withdrawal Rate in Retirement?

The safe withdrawal rate is the percentage of the money you can take out of your retirement savings each year without depleting your account. The safe withdrawal rate is based on historical data and market returns. Lastly, it can be a helpful tool for retirees looking to ensure that their savings last throughout their retirement years.

The 4% Withdrawal Rate Rule Definition

The four percent withdrawal rate rule is a guideline that many financial planners recommend for retirees. The idea is that, in the first year of retirement, an individual plans to withdraw four percent of their total savings. They can then adjust this amount each year after that to account for inflation.

The rule is based on the assumption that the retiree has a diversified portfolio of investments and will be receiving ongoing distributions from these investments.