The 4% Rule for Retirement Withdrawals — Is It Still Safe?

The 4% Rule Defined

  1. The starting value of your portfolio
  2. An assumed return on the portfolio
  3. A life expectancy factor

The Origin of the 4% Rule

The 4% Rule — A Rule of Thumb

  • Higher than expected inflation
  • Lower than anticipated interest rates
  • Lower than expected stock returns
  • Higher than anticipated retirement expenses
  • A catastrophic health event

Starting Portfolio Value

Calculation example

The Assumed Rate of Return

Life expectancy

Problems with the 4% Rule

Healthcare Costs

Required Minimum Distributions (RMDs)

  1. If you’re over age 59 1/2, begin withdrawing from these accounts early. Reducing the amounts in the plans at 70 1/2 offers more control over when and how you take income. Plus, you don’t pay the additional 10% penalty after age 59 1/2.
  2. Consider converting some of these funds to Roth IRAs. It’s not necessary to convert them all at once. You can make partial withdrawals yearly. Keep taxes minimized by converting just enough to keep you from going into a higher tax bracket.

Other Sources of Retirement Income

Final Thoughts



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