Last Updated on December 20, 2024
4% rule suggests that a retiree should be able to withdraw 4% of their savings and investments in their first year of retirement and then adjust the dollar figure based on their updated balance every year thereafter.
The 4% rule originally comes from a 1994 study by financial planner William Bengen and the theory is that this method gives people an excellent chance of not outliving their money.
Morningstar suggests in a new research report that retirees searching for a safe starting withdrawal rate should go no higher than 3.7%. That gives them a 90% probability of having some money remaining at the end of a 30-year retirement period.
“Starting at 3.7% and given a 30-year time horizon from, say, age 65 to age 95, it would provide some leftover assets that you can use in case you live longer or in case you want to leave money to heirs.”
Milestone Ages
At age 50, you can make catch-up contributions to a retirement account. At 59½, you can make withdrawals without penalty. Age 62 is the minimum Social Security age, age 65 is Medicare eligibility, age 66 to 67 is full retirement age, and 70 is your maximum benefits for Social Security.