Money MythBuster: 4% withdrawal rule

How much you withdraw depends on how much you spend, and retirement spending is not a single point decision, but multiple decisions over time

Ruth Saldanha 12 November, 2019 | 12:27AM

 

 

Mr. Morningstar Money Man: The 4% rule says that you can withdraw 4% of your portfolio each year for upto 30 years without outliving your money.

Here’s the problem – no two retirees are alike – some have simple scenarios, others are more complex. Also, retirement spending is not a single point decision. It is a combination of decisions over time.

Plus, when deciding how much to withdraw, you need to consider several aspects, including the value of your portfolio, discretionary and nondiscretionary spending, exogenous cash flows like pensions or social insurance, longevity, and the retiree’s own preferences.

Any rule that ignores these factors to present a simple solution will not work.

Like this guy allegedly said, “Everything should be as simple as possible – but not simpler!”

This Myth is Busted!

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Ruth Saldanha

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca