1. A safe withdrawal rate is the amount of money that you can withdraw from your investments each year after retirement, with the ability for future year’s withdrawals to increase with inflation, and with a high likelihood that this money will last for the remainder of your life expectancy, even if investments are delivering below average returns.
2. The typical 4% rule recommends that a retiree annually spend a fixed, real amount equal to 4% of his initial wealth, and rebalance the remainder of his money in a 60%-40% mix of stocks and bonds throughout a 30-year retirement period.
3. This will give you a greater chance of not running out of your money and it’s valid for 25+ year periods.
4. For an advanced life stage where 25+ years existence starts getting lesser, then the 4% can be adjusted upwards.
5. The way the 4% rule works is that you start by withdrawing 4% out of your portfolio in the first year, including dividends, interest and withdrawals.
6. The next year you withdraw the same amount as in the first year plus inflation.
7. If you start by withdrawing, say, Rs. 4 lakh out of your wealth of Rs.1 crore in the first year when inflation is 7%, then in the second year you withdraw Rs. 4 lakh + 7% (i.e. Rs.28,000)= Rs.4,28,000.
8. Every year thereafter, you keep adjusting the previous year’s withdrawal amount by the relevant inflation rate.
9. The 4% figure is your gross income before taxes, and this rule is only a guideline, so if your equity portfolio performs better than expected, then you can spend a bit more than the 4% rule amount.
10. During a sustained bear market when the value of your portfolio drops, then you should be prepared to cut back on withdrawals.
2. The typical 4% rule recommends that a retiree annually spend a fixed, real amount equal to 4% of his initial wealth, and rebalance the remainder of his money in a 60%-40% mix of stocks and bonds throughout a 30-year retirement period.
3. This will give you a greater chance of not running out of your money and it’s valid for 25+ year periods.
4. For an advanced life stage where 25+ years existence starts getting lesser, then the 4% can be adjusted upwards.
5. The way the 4% rule works is that you start by withdrawing 4% out of your portfolio in the first year, including dividends, interest and withdrawals.
6. The next year you withdraw the same amount as in the first year plus inflation.
7. If you start by withdrawing, say, Rs. 4 lakh out of your wealth of Rs.1 crore in the first year when inflation is 7%, then in the second year you withdraw Rs. 4 lakh + 7% (i.e. Rs.28,000)= Rs.4,28,000.
8. Every year thereafter, you keep adjusting the previous year’s withdrawal amount by the relevant inflation rate.
9. The 4% figure is your gross income before taxes, and this rule is only a guideline, so if your equity portfolio performs better than expected, then you can spend a bit more than the 4% rule amount.
10. During a sustained bear market when the value of your portfolio drops, then you should be prepared to cut back on withdrawals.