The 4% Rule: Only Withdraw 4% a year. Or maybe not.

For years, financial professionals have suggested that a safe way of managing your retirement savings and investments is to withdraw 4% a year, so that your principle never gets touched. Many financial projections also use that benchmark as a safe bottom to their calculations.

But is it true? After the financial turmoil related to Covid-19 - and inflation - some articles cast doubt on the wisdom of that thinking. The rule was first proposed in 1994, and things have changed bigly, from political turmoil to various fiscal shenanigans. Many respected financial institutions have varying degrees of confidence in the strategy, with obvious - and not so obvious - caveats. Here’s Forbes take, and another from Prudential.

If you really want to get into the weeds, this site looks at the 4% rule as it applies to Canada and Canadians, and has many useful links to more information.

For an American perspective (still useful considering that math transcends borders), take a look at this website, which bills itself as “The spending budget website for intelligent retirees and pre-retirees (and their financial advisors)". It’s a dry read, but gives you more information to make informed decisions.

There does seem to be one overriding conclusion to most of these data: the ‘4% withdrawal rule’ is a good starting point for spending in retirement, but it’s not set in stone. Be flexible, and keep your eyes on that (inevitable) horizon.

-(Updated Sept. 2024)