To help new retirees navigate withdrawals, advisers often recommend the “4 percent rule” as a starting point. This strategy is designed to make a portfolio last 30 years — through bear markets and bouts of high inflation.
The rule is simple. Retirees in the first year of retirement withdraw 4 percent from their 401(k)s and other tax-deferred accounts, where most workers hold their retirement savings.
Thereafter, retirees increase the dollar amount of their annual withdrawal by the previous year’s inflation rate.
For example, if you have a $1 million nest egg, you withdraw 4 percent — or $40,000 — the first year of retirement. If inflation that year is 2 percent, in the second year of retirement you boost your withdrawal to $40,800. If inflation jumps to 3 percent that year, the dollar amount for the next year’s withdrawal rises by the same rate, to $42,024. And so on.
This strategy has been a rule of thumb for millions of retirees, but it was considered radical…