Since 1994, retirees have relied on the 4% rule as the safe percentage of their portfolios’ value to spend in retirement. That would have protected them from running out of money in every 30-year period since 1926, even during the worst economic conditions.
However, there is no precedent for today’s combination of high inflation and high market valuations.
Bill Bengen, the rule’s inventor, says at this time, we should reduce that percentage further. There are over 300,000 financial advisors in the United States and Canada. Mr. Bengen is among the few worth listening to.
He recently stated that we should reduce our withdrawal rate until we see whether the current inflation rate is a long-term or a short-term phenomenon.
On average, a 7% withdrawal rate would have worked ever since 1926, Mr. Bengen’s research shows. When the S&P 500 was selling at bargain rates and inflation was low, investors could have safely taken out as much as 13% to start.
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