4% Rule “May No Longer be Feasible.”-Morningstar
According to a report released by investment research firm Morningstar, the commonly cited 4% rule “may no longer be feasible.” In fact, those retiring now should spend no more than 3.3% of their savings during the first year, and then adjust for inflation after that, regardless of the market’s performance. For example, the 4% rule states that from a $1 million portfolio, you would be able to withdraw $40,000 during the first year of retirement safely. Using the 3.3% rule, that amount would be $33,000.
Researchers at Morningstar simulated future returns over 30 years and found that in about a quarter of the simulations, a 50% stock and 50% bond portfolio would run out of money if withdrawals remained at 4%.
While the difference seems minimal, a CNBC analysis found that the difference would be more noticeable later in retirement: $75,399 versus $62,205, respectively, at the 30th year using a 2.21% annual rate of inflation.
“It’s counterintuitive, but when the stock market and stock valuations are high, it’s the worst time to retire,” said Morningstar personal finance director Christine Benz, a co-author of the firm’s report, the WSJ reported.
