Dividends4Life: Surprising Answers You Need to Know About Retirement's 4% Rule

The predominant retirement-financing method advocated by investment advisors, fund and ETF companies, AAII, Morningstar, and many pundits is called the “total return” approach. It has two phases: 1.) The accumulation years, during which you save for retirement, targeting a nest egg whose ideal size is known as The Number. 2.) The withdrawal years, when you sell off pieces of that nest egg to obtain the cash you need for living expenses during retirement.

In the second phase, there are guidelines for how much is “safe” to sell each year. The goal—“success” if you will—is to insure that you won’t run out of money while you are alive. The most common rule of thumb is the 4% rule: In the first year of retirement, sell 4% of your assets and use the cash as retirement income. In subsequent years, increment the withdrawal amount by a small percentage to cover inflation. The most common suggestion for that increment is 3% each year.

Source: Seeking Alpha

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