Four Percent Rule

Saving for retirement: it’s something we all (hopefully) think about and plan for at some point. If we’re really on our game, we’ve probably got some assortment of 401(k)s, IRAs, diversified market investments, and maybe even a few pieces of silver (metaphorically and literally) stashed away somewhere.

Which is all well and good, but what do we do with it once that marvelous moment we call “retirement” happens? How much of our hard-earned retirement money should we actually be spending?

Well, according to the experts, we should try to adopt the four percent rule. That is, we should withdraw no more than four percent of our total retirement savings every year. So if we’ve got a cool mil in retirement savings, we should only withdraw $40,000 over the course of a year. The goal of this rule is to lessen the likelihood that we outlive our savings; by living on just four percent per year, we’re allowing the rest of the money to continue accruing interest while we spend.

Of course, this isn’t a hard-and-fast law or anything. How much we withdraw can depend on things like the risk level of our investments, our age when we retire, the amount in our retirement accounts, our health, and the performance of the economy as a whole. But it’s a good rule of thumb to keep in mind when we’re figuring out how much we want to have saved by the time we get that gold watch.