The 4% Rule Faces New Problems Today - Reverse Mortgage

In an article for Kiplinger, financial planner Steve Parrish, J.D, RICP® explains how the 4% retirement income rule may not be appropriate in today’s world.

The 4% rule essentially hypothesizes that, based on past U.S. investment returns, a retiree expecting to live 30 years in retirement should be safe (in other words will have money left over at death), if he or she withdraws approximately 4% of their retirement capital each year, adjusting the income annually for inflation. This idea further assumes your retirement savings is invested in a 60/40 mix of equities and fixed income products.

Here’s the problem. This concept is based on averages, and retirees can’t spend averages. Right now we have an investment market that is alarming from two perspectives: Stock prices are sitting at historically high levels, while bonds are paying out historically low incomes.

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