One of the most important and difficult questions to answer in retirement is how much you can spend each year without going broke. The most popular answer to this question is what is known as the 4% rule. From a 1994 paper written by Certified Financial Planner Bill Bengan, here’s how it works.
In the first year of retirement, you can spend 4% of your savings. This 4% is known as the Safe Withdrawal Rate. Each year thereafter you can adjust your spending by the rate of inflation. According to Mr. Bengen’s research, if you follow this strategy, your money should last at least 30 years in retirement.
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