The Truth About the 4% Rule: What You Really Need to Know for Retirement

If you think you can only withdraw 4% of your money per year in retirement, you've been lied to. Here’s the truth.

1. The 4% Rule Origin

The 4% rule is based on the Trinity Study, conducted by three professors from Texas. They showed you could safely withdraw 4% of your principal and almost never run out of money.

2. Median Ending Value

However, the study also found that the median ending value of a $1 million hypothetical portfolio with a 4% annual drawdown was valued at $10 million after 30 years, assuming it was 100% invested in stocks.

3. Mixed Investments

Additionally, it found that the median value of the same hypothetical million-dollar portfolio with the same 4% annual drawdown was valued at $6 million after 30 years, invested 75% in stocks and 25% in bonds.

4. Higher Withdrawals

Finally, the study concluded that you could withdraw 7% of your principal annually and have a 96% chance of never running out of money, as long as you were 100% invested in stocks.

Conclusion

So what's the takeaway? Yes, you can withdraw 4% of your principal annually in retirement, and the odds are you'll be safe. And yes, you can withdraw 7% of your portfolio in retirement, and the odds are you’ll be safe. Isn’t it nice to know you only need about half of what you’ve been told you need to retire?

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