The 4% withdrawal rule is a popular retirement strategy that helps investors withdraw money safely from their accounts, with low odds of running out of money later. Lower expectations for long-term stock, bond and cash returns means new retirees may need to proceed a bit more cautiously, according to Morningstar.
The strategy helps retirees determine how much money they can withdraw annually from their accounts and be relatively confident they won't run out of money over a 30-year retirement period. According to the strategy, retirees tap 4% of their nest egg the first year. For future withdrawals, they adjust the previous year's dollar figure upward for inflation. But that 'safe' withdrawal rate declined to 3.7% in 2025, from 4% in 2024, due to long-term assumptions in the financial markets, according to Morningstar. Specifically, expectations for stock, bond and cash returns over the next 30 years declined relative to last year, according to Morningstar analysts. This means a portfolio split 50-50 between stocks and bonds would have less growth. While history shows the 4% rule is a 'reasonable starting point,' retirees can generally deviate from the retirement strategy if they're willing to be flexible with annual spending, said Christine Benz, director of personal finance and retirement planning at Morningstar and a co-author of the new study. 'We caution, the assumptions that underpin are incredibly conservative,' Benz said. 'The last thing we want to do is scare people or encourage people to underspend.' Pulling out too much money early in one's retirement years — especially in down markets — generally raises the odds that a saver will run out of money. The 4% rule aims to guide retirees to relative safety. Here's an example of how it works: An investor would withdraw $40,000 from a $1 million portfolio in the first year of retirement
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