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What if I can't afford to withdraw 4% each year?

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You may want to consider delaying retirement or find ways to cut back on spending to ensure your money lasts throughout your retirement.

The 4% is a guideline that says if you withdraw 4% of your portfolio’s value in your first year of retirement, and increase that amount every year for inflation, you’ll have a 90% chance of it lasting for 30 years, assuming you have a conservative-to-moderate portfolio. For more details on the 4% rule, read

Rethink your retirement

If you don’t think you can afford to withdraw 4%, you’re not alone. Market performance over the past few years has hit retirement portfolios hard. Regardless of what you do about your investments, here are some questions to ask yourself and practical ways to help make your money go further:

  • How dependent are you on that 4% for fixed expenses like housing, food, and medical care? If you can cover essentials like these with other income streams, such as a pension or social security, consider withdrawing a smaller percentage.
  • Could you seek part-time work during retirement? The supplementary income could help you withdraw less from your portfolio during the early years and give you a larger cushion for the future.
  • What’s your risk tolerance? The 4% guideline is designed to provide you with a 90% certainty that you won’t outlive your money. If you’re comfortable with a lower confidence level, you could withdraw more, like 5%. 
  • How active do you want to be? Many retirees find that their lifestyle is more costly in the early part of their retirement while they’re traveling and pursuing other interests. If you are confident that you’ll spend less as you age (health care costs notwithstanding), you can budget accordingly.

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