What Will Your Income Be During Retirement? The 4% Rule

“Don’t simply retire from something; have something to retire to” ― Harry Emerson Fosdick

3 min read

The 4% Rule - How Much Can You Withdraw From Your Portfolio During Retirement

What Will Your Income Be During Retirement? The 4% Rule

“Don’t simply retire from something; have something to retire to” ― Harry Emerson Fosdick

3 min read

The 4% Rule is a principle in retirement planning that offers a systematic approach to managing withdrawals from you investments during your golden years. It revolves around the idea that withdrawing 4% of your initial retirement portfolio annually provides a sustainable income for at least 30-years.

Understanding the mathematics behind this rule can be highly useful when looking at financial stability in retirement, and that’s exactly what we are going to do! Find out if this rule can be helpful for your planning by reading below.

Decoding the Maths

The 4% Rule is based on a simple formula. For example, if you have a 1 million retirement portfolio, you would withdraw 40,000 in the first year of retirement. Subsequent withdrawals would adjust for inflation, ensuring a consistent real income over time. This strategy therefore aims to balance the need for regular income with the desire to preserve capital for an extended retirement period.

The mathematical foundation of the 4% Rule provides a structured approach, but it’s essential to recognise that individual circumstances vary and it is common to spend more in your earlier years of retirement, and less in your later years.

Considerations and Adjustments

Whilst the 4% Rule can provide a useful framework, it’s not a one-size-fits-all solution and should be taken with a grain of salt.

Factors such as inflation rates, your investment returns, anticipated lifespan, healthcare expenses, and lifestyle choices can greatly influence the efficacy of this rule. Hence, you should really view the 4% Rule as more of a starting point, that requires ongoing reviews and adaptation to your lifestyle, than the final answer to the question “how much income should I take in retirement”.

Balancing Risk and Reward

The important point to note is that you must strike a balance between enjoying your retirement and safeguarding against longevity risk. The 4% Rule offers a compromise, providing a steady income stream whilst preserving the potential for portfolio growth. However, the rule’s success hinges on a diversified investment portfolio that can weather market fluctuations. As such, regular (at least once per year) portfolio reviews with your Patterson Mills Financial Adviser can help align your investments with your risk tolerance, ensuring a balanced approach to risk and reward.

Your Path to a Secure Retirement Starts Here

It’s true that the 4% Rule is not useful for everyone. However, if you are unsure of what to do, it can be a useful guide to start. In reality, the path to a secure retirement is best traveled with a knowledgeable guide. Your financial wellbeing deserves the attention of a dedicated professional, and Patterson Mills is here to ensure that you benefit from every aspect of the retirement planning process. Make the call today and step into a future of financial confidence and prosperity.

Get in touch with Patterson Mills and book your initial, no-cost and no-obligation meeting. You will be pleased that you did.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all information within this article has been prepared for informational purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.