Welcome to Ask Clark, a column designed to answer your financial questions by money expert Clark Howard.
Is the 4% Rule of Retirement Still Accurate?
Gary from Florida asks: “I was wondering if you think the 4% retirement rule or guideline is still accurate? And if so, with what portfolio mix of stocks and bonds and particularly annuities do you think would be appropriate to use with that?”
Clark’s Take on Whether the 4% Retirement Guideline Is Still Accurate
Clark says: “There’s been a lot of debate recently on whether the 4% rule is still an accurate number.”
For those who are unfamiliar with the concept, Clark says the idea behind the 4% rule is that retirees who have well-diversified investment portfolios can safely withdraw 4% of their money each year. At this rate, they need not worry about going broke or having inflation erode their living standards too much over the years.
“It’s not 100% certain that 4% would work,” Clark says. For instance, he says people who go into retirement right before a big stock market crash may find it more difficult financially.
“But the 4% rule is still respected,” he says, “although there are people who say it can be higher than that: more like 5%. There are others who say it needs to be lower, somewhere around 3.5%, But the idea still holds as a sound concept — not a firm rule.”
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