Bill Bengen, the creator of the 4% rule, has introduced a new safe retirement withdrawal rate of 4.7%. This updated rule suggests retirees can withdraw 4.7% of their portfolio in the first year of retirement, adjusted annually for inflation. Bengen emphasizes that retirees should consider eight customizable elements when creating a retirement income plan:
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Withdrawal Scheme: Choose a method for withdrawing funds, such as the 4.7% rule, fixed percentage, annuities, or front-loading spending.
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Planning Horizon: Determine your retirement duration, considering life expectancy and adding a margin of error.
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Tax Implications: Account for taxes on withdrawals from taxable accounts, which can reduce the sustainable withdrawal rate.
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Leaving a Legacy: Decide if you want to leave money to heirs, which may require adjusting your withdrawal rate.
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Asset Allocation: Structure your portfolio with a stock allocation between 47% and 75%, balanced with bonds and cash.
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Portfolio Rebalancing: Regularly rebalance your portfolio to maintain asset allocation and manage risk.
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Investment Strategy: Consider investing in index funds to match market returns, unless you have exceptional investing skills.
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Withdrawal Timing: Decide on the timing of withdrawals, whether evenly distributed or as lump sums, as this affects the sustainable withdrawal rate.
Retirement planning requires ongoing monitoring and adjustments to navigate unexpected challenges over a 30-year retirement period.
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