Search results for: 4% rule

MOST PEOPLE THINK their retirement accounts are completely locked until age 59½ due to the 10% early withdrawal penalty, but that’s not really true. There are many ways to access your money earlier without the penalty, and knowing them can give you flexibility. Of course, you shouldn’t be touching your retirement accounts unless you’re ready to retire.
Here are some distributions that are not subject to the 10% penalty, per the IRS list:

Birth or adoption (up to $5,000 per child)
Series of substantially equal payments (72t)
First-time homebuyer (up to $10,000,

Firstly, full credit to Kristine Hayes for this idea. I wish I could say that I thought of it on my own.
Kristine wrote about her buying and selling of houses that didn’t fit the accepted “rules of thumb” for personal finance. I was reflecting on my own financial path thus far, and ways in which we have strayed from the recommended path. Two in particular stick out.
All in equities
My wife and I were lucky to have good jobs straight out of university.

Longtime readers of Humble Dollar will know a semi-recurrent theme to my writings involves the idea that luck, timing and not-following-certain-financial-rules have helped shape my financial journey. 
Perhaps most notable is the purchase of a home I made in late 2018. I was well-acquainted with the rule that stated nobody should purchase a home if they don’t intend to live in it for at least five to seven years. And yet I really had no choice.

Most people use a version of the 4% SWR in retirement. I think it’s the wrong approach for most, although it offers a tempting idea: an extremely high probability of not running out of money and genuine income stability. These reasons are its biggest Achilles heel—it causes the median retiree to pass with a large amount of unspent wealth. Many studies suggest two-thirds to four-fifths of retirees end with a portfolio equal to or larger than their starting balance.

The 4% rule (or is it 4.7% now?) is supposed to be a simple way to figure out how much you can safely withdraw each year, but I’m curious – do HD members really follow it?
While it’s a decent projection, I imagine there are plenty of circumstances where a fixed percentage needs updating – health expenses, market swings, helping family, inflation surprises, or even big life events like moving or starting a new chapter you hadn’t planned for.

I realize this is an anomaly, but my wife Suzie is in a much better financial position today because she cashed out her Defined Benefit pension for a lump sum payment.
Neither Suzie nor I understood the reasons why the offer was so generous. The financial advisor we consulted about the proposed surrender value also didn’t get the logic but strongly suggested we take the deal.
I don’t like little mysteries that defy normal thinking, so over the last while,

This floated across my screen a couple of days ago.
Bill Bengen introduced the 4% rule in 1994.  It suggested that a one may safely withdraw 4% from a portfolio in the first year of retirement and it would be likely that portfolio would last for 30 years.
Bengen is publishing a new book A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More
In it he updates the rule but also provides a 55/45 model portfolio. 

On April 25 Morningstar published an article “Retirees: Here’s How to Tweak the 4% Rule to Protect Your Nest Egg”.  It includes a link to their Report “State of Retirement Income 2024”.  The report requires an email address.
With recent stock gyrations I thought that their most recent look at withdrawals and retirement accounts might be helpful.
Here are a few points made in the article:

“Morningstar researchers have investigated and identified their latest starting safe withdrawal rate.

I have seen countless articles on the 4% rule, which essentially states that withdrawing 4% annually from a retirement portfolio (adjusted for inflation) provides a high probability that funds will last for at least 30 years. Correct?
But I have never encountered a 4% article that factors in the reality that a great number of us enter a presumptive retirement of 30 years with a spouse or partner. 
I assume a couple likely needs less than 2x the portfolio of a single person.

BENJAMIN GRAHAM was Warren Buffett’s teacher and mentor. He also ran an investment fund that specialized in uncovering demonstrably undervalued stocks.
One day in 1926, Graham was at his desk, reading through a government report on railroads, when he noticed a potentially important footnote. It referenced assets held by a number of oil pipeline companies. But there wasn’t a lot of detail, so Graham boarded a train to Washington and found his way to the Interstate Commerce Commission (ICC),

There are alternatives to the 4% rule that are not complicated. Here are three ways to calculate your first-year spending rate. All the calculations show the percentage of your investment assets so you can compare them against each other and the 4% rule.
The first one is from the Society of Actuaries:
Retirement age / 20 / 100
At 65 the calculation would be 65 / 20 / 100 = 3.25% and if you retire at 75,

HERE’S A FINANCIAL topic on which I claim scant expertise: spending. Still, I’ve belatedly been getting a lot of practice.
Over the past four years, I’ve spent more freely than at any time in my life. While part of it might be explained by post-pandemic splurging, mostly it’s because I finally convinced myself that I had more than enough saved for retirement. Added to that has been my recent cancer diagnosis, which has prompted Elaine and me to take our spending to a whole new level,

The Forum has been live for more than two months, and it’s been a hit with readers. Each day brings an impressive number of comments and often at least a few new discussion threads. But—as your most irritating boss would remind you—there’s always room for improvement.
Here are six suggestions for Forum participants:

Don’t refer to stocks and funds by their ticker symbols or, at a minimum, not on first reference. I’ve spent my career focused on this stuff,

MARKET OBSERVERS have been predicting a recession for the past two years. Why? They’ve pointed to what’s known as an inverted yield curve, when short-term interest rates are higher than long-term rates. Historically, this has been a bad omen for the economy. The yield curve has been inverted since 2022—and yet, despite that, the economy has remained strong and stock markets have continued to hit new highs.
That all changed on Aug. 2, when a little-known indicator known as the Sahm rule began flashing red.

The IRS on Thursday issued final regulations regarding Required Minimum Distribution (RMD) requirements for those who inherit retirement accounts which were published in the Federal Register today 7/19/2024. The final regulations requires Non-Eligible Designated Beneficiaries to take RMDs starting in 2025 if the decedent had already reached their required beginning date.
The full final regulations can be read here –
https://www.federalregister.gov/documents/2024/07/19/2024-14542/required-minimum-distributions
The summary of the rule as published in the Federal Register is effective 9/17/2024 follows-
This document sets forth final regulations relating to required minimum distributions from qualified plans;