Retirement Withdrawal Strategies - Free Wealth Building eBook
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Real life investor, entrepreneur and personal finance author Camille Gaines explains the 2 most common retirement withdrawal strategies.
The 4% Rule:
The amounts will vary according to how the value of your investments fluctuate from year to year and inflation.
Dividends and capital gains are withdrawn under this rule.
Many experts consider the 4% rate to be relatively safe since the regular withdrawals have an element of dividends and capital gains in them. After the 2008 recession, fewer advisors suggest the 4% retirement withdrawal strategy
Pros of the 4% retirement withdrawal strategy and ideas for financial planning in your 50's before retirement
• The retiree is guaranteed steady funds after retirement. • The 4% rule also assists with retirement
Cons of the 4% retirement withdrawal strategy
• The rule can be restricting if 4% isn’t enough to sustain your standard of living.
• Bear markets just prior to retirement or shortly after retirement can have a damaging
effect on this strategy.
• The experiments used only a withdrawal period of 30 years. • withdrawal is adjusted for inflation, more likely to run out of money if inflation rises significantly.
ERW #2: 2% to 3% Rule Like the 4% thumb rule, withdraw funds at a lower rate of 2% to 3%. Dividends and capital gains under this rule can also be withdrawn and treated as explained under the 4% Rule.
A 2015 study published by Morningstar and written by 3 retirement specialists, David Blanchett, Michael Finke, and Wade D. Pfau compared the 4% and 2% rules.
They concluded a 2% retirement withdrawal strategy was more realistic because:
1. More current model that considered lower interest rates and high stock valuations.
2. Factored in wealth management fees.
3. withdrawal period of 40 years as compared to 30 for the
4% retirement withdrawal strategy.
4. It’s no doubt retirees face unusually high valuation returns risk near the end of bull markets. The study adequately accounted for the heightened sequence of returns risk. $1,000,000 x 3% annual withdrawal $30,000.
The 2-3% Retirement Withdrawal Strategy
Pros of the 3% Retirement Withdrawal Strategy
- The rule is more realistic in terms of life expectancy after retirement. 40 years vs 30 years by the 4% rule.
• Reflects more current economic times.
• Considered that you may need the services of a professional.
Cons of the 3% Retirement Withdrawal Strategy
• You only get 3% of your portfolio to live
The cons with the 4% retirement withdrawal strategy also apply here.
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Camille Gaines Financial Coach
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Thanks for watching
Camille Gaines
Financial coach at Retirecertain.com
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