If the cost of living rises 2% that year, you would give yourself a 2% raise the following year, withdrawing $40,800, and so on for the next 30 years. You would withdraw $40,000 in your first year of retirement. By following this formula, you should have a very high probability of not outliving your money during a 30-year retirement, according to the rule.įor example, let's say your portfolio at retirement totals $1 million. In subsequent years, you adjust the dollar amount you withdraw to account for inflation. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. One frequently used rule of thumb for retirement spending is known as the 4% rule. But if you spend too little, you may not enjoy the retirement you envisioned. But how much can you afford to withdraw from savings and spend? If you spend too much, you risk being left with a shortfall later in retirement. You've worked hard to save for retirement, and now you're ready to turn your savings into a paycheck.
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