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Retirees' Withdrawal Syndrome: How Much to Live On
Will 4 percent withdrawals get you through retirement?
Avoiding the nightmare financial scenario in retirement -- running out of money -- is getting trickier.
Rising life expectancy means having to pay for a longer retirement. The lack of a pension or frozen benefits translate to fewer, smaller checks from ex-employers. And the days of being able to count on averaging 10 percent annual returns from the stock market are over.
All that makes it even more important for retirees to know just how much they can take out of their portfolios every year without drawing them down too fast.
There isn't one model that fits all. It depends on individual circumstances, best reviewed with a financial adviser.
But the classic guideline long followed by many, and still respected, is widely known as the 4 percent rule. It holds that if you withdraw no more than 4 percent from your savings the first year of retirement and adjust the amount upward for inflation every year, you can be confident you won't run out of money during a 30-year retirement.
The strategy is credited to financial planner William Bengen, who published his research in the Journal of Financial Planning in 1994.
The twist is this: The father of the 4 percent rule says the complete number is actually 4.5 percent.
"A 4 percent rule is just so easy to think about. People just kind of ignore the extra half," chuckles Bengen, 64, who operates Bengen Financial Services in La Quinta, Calif.
Bengen spoke about his rule and the proper approach to withdrawals in a recent interview. Edited excerpts follow:
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