It's the 3.3% rule now: how to not run out of retirement savings

How to think about your retirement savings The 4% rule suggests that retirees should withdraw 4% of their retirement savings in the first 12 months of their golden years, adjust with inflation for each following year, and run no risk of running out of money within 30 years. This very niche rule of thumb became popularized around 1998, and its real name is actually the Bengen rule, as it was coined by financial analyst William Bengen and based on stock market returns from 1926-1976. What was considered a tried and true, reliable rule, may not be anymore... About rules of thumb Have you ever stopped to think about what the phrase "rule of thumb" is actually pointing to? It's meant to reference an approximate measure, and so whether it's rounding up when you're asked your height or just trying to determine your retirement salary, we can rest assured that the number isn't concrete. So, the right number is different for everyone. Nevertheless, approximations and guidelines never hurt, and if anything, is interesting to learn about. Adjusting down Over the last few years though, analysts have come to realize we've been a bit blessed over the last couple decades in terms of retirement investing and the sense of certainty we feel about it. The data the 4% rule is based on comes from a time when bond yields were actually noteworthy, whereas now they're not very likely to bring investors anything of substance for the foreseeable future. We're also dealing with a stock market that's been pretty jubilant over the last 20-30 years, and some project that to regress a bit to the mean over time. We combine this with some heightened inflation in the meantime, and it's easy to see why some of the more pessimistic prognosticators are adjusting down this rule of thumb to 3.3% for now, which is a small .7% difference that could matter over time. Ultimately, it's still complicated There are always caveats to things like these, they're very personal matters, and neither trends nor conventional wisdom can predict the future. Will those bearish catalysts sink down this rule of thumb even further, forcing retirees to live on less? Maybe, but maybe not. The best solution to this uncertainty is to craft your own rule of thumb for retirement. It could take a period of pondering and thinking ahead, but once done you can combine this with your financial situation to create a solid plan that suits your needs. 💡 Here's a relevant micro lesson on the topic that further explains the original 4% rule: Is the FIRE movement for you?

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