Smart Retirement Formula: 4% Rule Ensures Financial Security for Life The 4% Rule is a widely recommended strategy for retirement planning, designed to help individuals maintain their financial stability throughout their retirement years. This method, developed by financial advisor William Bengen in the 1990s, suggests that retirees can withdraw 4% of their retirement corpus annually, adjusting for inflation, to ensure their savings last for at least 30 years. This approach balances the need for regular income with the goal of preserving the principal, even during periods of market volatility. The rule works by taking the total retirement corpus and withdrawing 4% in the first year. Subsequent withdrawals are adjusted for inflation, ensuring that the purchasing power of the funds remains consistent over time. For example, if an individual has a retirement corpus of ₹1 crore, they would withdraw ₹4 lakh in the first year. If inflation is 6% in the following year, the withdrawal amount would increase to ₹4.24 lakh to maintain the same real value. This process continues, allowing retirees to meet their financial needs while keeping a significant portion of their savings invested. The 4% Rule is based on historical market data, which showed that a portfolio consisting of 50% equities and 50% bonds could sustain withdrawals of 4% annually without depleting the principal. This strategy is particularly effective in scenarios where the market experiences fluctuations, as the diversified portfolio helps mitigate risks. However, the rule is primarily designed for a 30-year retirement period.#financial_advisor #retirement_planning #william_bengen #4_percent_rule #systematic_withdrawal_plan
