The 3 Things You Haven't Been Told About the 4% Rule in Retirement

Here are the three things that you have not been told about the 4% rule in retirement, and you're going to want to hear this one. I'm Tyler, a former financial advisor and portfolio manager, and now I create financial content for free to help you navigate your finances.

1. Potential Portfolio Growth

In 1998, three professors conducted what is now referred to as the Trinity Study, concluding that you would be fine, on average, withdrawing 4% of your retirement portfolio annually over 30 years. But here’s what you probably don’t know: with a 75-25 stocks-bond split, after 30 years of withdrawing 4% annually, not only would you be fine, you’d have, on average, $10 million in your portfolio when you die.

2. Withdrawing More Than 4%

With that same 75-25 split, 98% of the time, you would have been fine taking 5% annually. 96% of the time, you’d be fine taking 6%, and 91% of the time, you’d be fine taking 7%. I'm not telling you to do it, but it's possible, so long as you keep your eye on the markets. If it tanks 20% in a given year, maybe don’t take 7% that year.

3. The Impact of Advisor Fees

With that same 75-25 split and a 7% drawdown, if you’re also paying a financial advisor 1%, the odds of making it through retirement with money drop to 69%. Add some mutual fund fees of 1%, and you're looking at a 50-50 coin flip. So hopefully that advisor would tell you: if you want the 7%, you can't work with an advisor.

And isn’t it ironic, don’t you think? A little too ironic.

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