Planning for retirement can feel like a nightmare. It’s difficult to work through all the numbers and logistics, but understanding how much you can safely spend from your savings can clear the path for your future.
About 26% of Americans say they believe having between $500,000 to $1 million saved up is the sweet spot for a worry-free retirement, according to a recent survey by GOBankingRates. But achieving that $500,000 milestone is just the beginning — how do you make sure it sustains you?
Enter the 4% rule, a widely known strategy among financial experts. This strategy recommends withdrawing 4% of your savings yearly to cover expenses, with adjustments for inflation in the following years.
Asher Rogovy, the chief investment officer at Magnifina, explains this approach is supported by the gains typically seen from a relatively conservative investment strategy. For a portfolio valued at $500,000, you could expect to disburse $20,000 annually.
This approach is a safe bet your savings will last for a 30-year retirement period. In fact, Forbes reported the 4% rule “has stood up to the stock market crash of 1929, the Great Depression, World War II and the stagflation of the 1970s.”
But although history suggests the 4% rule is a solid guideline, it isn’t set in stone.
Brian Kuhn, a financial advisor at Wealth Enhancement Group, advises that withdrawal rates can flexibly range from 4% to 5%, depending on individual circumstances. For those concerned about unexpected costs, drawing less than 4% can provide a financial buffer for unforeseen expenses.
If $20,000 a year doesn’t cut it, you should seek personalized advice from a financial planner. They can guide you in adjusting withdrawal rates or strategizing Social Security benefits to ensure your retirement savings serve you well.
At its core, planning for retirement is about crafting a strategy with some wiggle room in your spending, then tweaking it as life happens. After all, the goal is not to let tricky budgeting take over your life, but to fully savor every moment of your retirement.
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