Is 2 Percent the New Safe Retirement Withdrawal Rate?
When planning for retirement, it’s not just about how much you money you save up. One of the most important variables to consider is what’s called the safe retirement withdrawal rate – how much money you’ll withdraw each year to live off of. To take too much may drain your nest egg and leave you with nothing. To take too little may curb your lifestyle more than you’re use to.
For years, financial advisors have long proclaimed a safe retirement withdrawal rate of 4 percent as the rule of thumb. That means you would have a relatively high chance of success if you start off by taking out only 4 percent and then adjust each year with the rate of inflation. But lately not everyone agrees, and the spread is more surprising than you think.
A New Spin on the Safe Retirement Withdrawal Rate:
Smart Money magazine recently ran a great article in their February 2012 “New Retirement” section by Glenn Ruffenach that investigated the viability of the 4 percent rule. In the article, he cited:
• The Journal of Financial Planning predicted that a safe retirement withdrawal rate from nest egg is 1.8 percent.
• The Retirement Management Journal said some individuals may be able safe withdrawing as much as 7 percent during retirement.
So if the experts can’t agree, what are you supposed to believe?