Tuesday, May 6, 2014

The Four Per Cent Rule — is this common retirement benchmark right for you?

First coined 20 years ago, the Four Per Cent Rule has become an accepted rule of thumb in the retirement planning community.
The basic premise is this: If you withdraw four per cent of your retirement nest egg in your first year of retirement and then adjust that amount for inflation thereafter, you should have enough money to last you through your retirement years.
However in recent years, as the recession kept interest rates at near-record lows, the Four Per Cent Rule began to get called into question. Economists and financial planners started to question whether retirees would use up their savings too quickly in an environment where returns on their investments weren’t able to keep up with the withdrawal pace established under the Four Per Cent Rule.
Given that returns from mutual funds and the stock market are unpredictable, many retirement planning experts are beginning to suggest a more dynamic approach whereby retirees adjust their withdrawals on an annual basis, based on the performance of the markets.
And while the Four Per Cent Rule is still often advocated as a good starting point, other factors like your retirement age also impact its applicability. For example, those who retire at 50 need to plan for many more years of retirement, which may mean that withdrawing four per cent in the beginning is too high and perhaps they should start at three per cent. Conversely, those who retire at 65 may be able to afford to withdraw closer to five per cent right from the start.
The right retirement plan for you will depend on your own financial situation, your retirement goals and the steps you can take to get there. If you’d like help with your retirement plan, we’d be happy to discuss it with you. Call us at (204) 954-7450 or stop by one of our branches.

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