The 4 Most Common Misconceptions About the 4% Rule in Retirement

"The 4% rule says that if you withdraw 4% of your savings balance your first year of retirement and adjust future withdrawals for inflation, your nest egg should last 30 years. Here's how it might work in theory. Let's say John retires with $2 million. During his first year of retirement, he'd withdraw $80,000 from his savings. If inflation then rises 3% the following year, he'd withdraw $80,000 plus 3%, or $82,400. And so forth."

"The 4% rule hinges on having a specific investment mix - a roughly 50/50 split between stocks and bonds. The thinking is that the bond portion of your portfolio won't necessarily see a lot of growth but it should generate steady income, while the stock portion delivers gains and perhaps generates moderate income, depending on your specific investments. Now to be fair, a 50/50 split between stocks and bonds is a reasonable asset mix for someone of retirement age."

Many retirees need a clear withdrawal strategy to prevent running out of savings. The 4% rule recommends withdrawing 4% of retirement savings in the first year and then adjusting withdrawals for inflation to preserve a nest egg for roughly 30 years. For example, a $2 million balance yields an $80,000 first-year withdrawal, growing with inflation in subsequent years. The rule relies on a specific roughly 50/50 stock-bond allocation; portfolios skewed heavily to bonds may lack sufficient growth to support a 4% rate. The rule also depended on historically higher bond yields, making it less reliable in low-rate environments.

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