Remember when every single financial guru in America touted that if you wanted your retirement money to last your entire lifetime, you had to only withdraw 4% out of your portfolio every year? Well, consider that rule gone. In its stead financial “experts” have now downgraded that percentage to 2.5%. Oh, there may be a few individuals who saved so many millions of dollars for their retirement that they may be able to get away with 3.5%…..but for the rest of us? If we want our retirement money to last the rest of our lives, we better downgrade our lifestyle expectations and learn to make due with 2.5%.
According to this Market Watch article (click here) the 4% rule is up for debate.
A new analysis from investment research firm Morningstar suggests the withdrawal rate of 4% may be off. In fact, researchers suggest the rate should be as low as 3.3% for people who want to ensure their retirement savings last their lifetimes. The 3.3% figure assumes a balanced portfolio and fixed withdrawals over the span of 30 years, an estimated length of retirement years, which leads to a 90% probability of not running out of money in retirement.
Other analysts agree the safe withdrawal rate would be around 3% — or lower. “I think it is far too aggressive today and other advisers agree,” Allan Roth, founder of Wealth Logic, wrote on Barron’s. After modeling these rates, Roth said a 3% withdrawal rate would be good for 25 years, so a couple at the age of 65 who retired should try to aim for 2-2.5% if their budget is mostly non-discretionary. This rate also depends on the age at retirement — someone younger would need to spend less whereas someone older could have a higher rate.
One of the key points many of these ‘experts’ never take into consideration is the amount of a retirees Social Security checks and whether or not they get pensions. Either way, I tend to agree with these ‘experts’. Right now, the less you take out of your savings portfolio the longer your money will last during the 25 to 30 years you may have of retirement. It’s better to be safe than sorry when you’re facing your 90s with dwindling cash reserves.
The biggest culprit in all of this is indeed our current rate of high inflation. I personally, only prepared for a 3% to 5% rate of inflation. I had no idea the percentage could rise as high as 20% to 50%. I’m finding it harder and harder to make ends meet just on my passive income. I now have to tap into my portfolio and will be withdrawing 2.5% of my reserves simply to pay my everyday bills. I need to re-prioritize my lifestyle. What do I keep? What do I eliminate? What can I substitute? How do you downgrade what you have already downgraded?
As time passes on, more and more fellow retirees will come to the same roadblock I have come to. Hopefully people such as myself will have paved a way. We all learn from each other, don’t we? Some examples might be going down to one car. Cutting back on travel and vacations (every retirees nightmare, especially if you’ve waited for retirement in order to travel). Moving to a less-expensive, more friendly tax state (but that can change drastically once you re-locate) Will I be the bag lady scrounging amongst the day old breads looking for a bargain? Or will I be the lady who saved and prepared and bakes her own bread daily? All of this will depend on how smart I am, how adept I am and how creative I can be making money appear out of thin air.
I probably will know the answers to the questions I have posed to myself up above, on my death bed. Then and only then will I finally know if I had a successful retirement. Till that time, I’ll just keep plugging along, studying retirement trends, reading about new retirement ideas, learning new methods and simply continuing to do the best that I can possibly do.
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For more on The Great Retirement Reset watch this recent video from Wealth Track:
Ciphers From Cindi 
Thanks so much for posting the video! We’ve been talking about our retirement, and watching our portfolios drop a bit, although we are still up for the most part. Health insurance, and how much we withdraw in the future are our concerns. This was especially helpful.
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You’re welcome. Have you checked out Obamacare in your state? That’s always been a good option for many as they leave the workforce and enter retirement.
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Obamacare is the worst! Even with subsidies, the out of pocket max is $11,000, $17,000. They are mostly HMOs and none of them took our doctors. It shouldn’t say ‘affordable’ anywhere near its name. I spoke to an insurance broker and we believe private insurance may be the way to go. It was actually less than Cobra, and a much better plan than Obamacare.
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WOW! Had no idea. It’s good in NY. Go figure. Well, I am sure you will make a wise and the best decision. Good luck!
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Hi Cindi, I never believed in the 4% rule retiring early at age 45, it was way to aggressive. I favored the endowment method ( not touching the principle using only 90% maximum of gained income ) and with yearly self imposed guard rails during the boom years. I have always used a very conservative mix (50/ 40/10 of stocks/ CDs / cash and the last four years switch CDs to preferred stock dividends. 24 years into retirement this allows an increase in income every year, if I need it. I used 3% inflation rate, too,The last two years after getting Covid19 I use more techniques to stretch and leverage my base foundation and so I still create more passive income streams. It’s working my principal is still growing after all these years. I also refill my larder in November and December with frozen Turkey and cheap baking items. In January with canned goods, household items, vitamins and paper goods. This keeps my grocery budget super low for the other nine months. As you know with the free gift cards it’s over $700 less in 2022 so far. Sincerely, Lara
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I’m only now starting to withdraw anything out of savings. Up until now, there was no need. I think the biggest hit we took to our retirement fund was the fact that Nick didn’t work these last two years due to covid and all the shut downs. he simply could not get the parts. And at age 62-63, it was good timing. I’m going to have to search for a new rewards/gift cards. That 3% to 5% has now been reduced to 1% and the $10 basis for any gift card has been raised to $25, so that’s a double whammy. They’ve made it more difficult to qualify. Time to move along.
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Sorry to hear about your credit card changes most of the cash rewards cards/ no annual feess are offeringonlyv$200
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