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Retirement Guru: Understanding the 4% Rule
Retirement planning is a crucial aspect of financial management, ensuring you can maintain your desired lifestyle once you stop working. Among the various strategies employed in retirement planning, the "4% rule" has gained significant popularity and attention. Let's delve into what the 4% rule entails and why it's one strategy you can consider when preparing for your retirement.
What is the 4% Rule?
The 4% rule is a guideline used to determine how much a retiree can safely withdraw from their retirement savings each year without running out of money. It originated from a study conducted by financial planner William Bengen in 1994. Bengen analyzed historical market data and retirement scenarios to determine a sustainable withdrawal rate.
According to the 4% rule, retirees can withdraw 4% of their retirement savings in the first year of retirement, thereafter, adjusting this amount annually for inflation. The idea is that this withdrawal rate will provide a high probability of their savings lasting for a 30-year retirement period.
How Does it Work?
Let's break down the workings of the 4% rule:
- Initial Withdrawal: In the first year of…
