Reasons Early Retirees Should Use Lower Withdrawal Rates

An article titled That '4 percent rule' could spell trouble for early retirees on CNBC reports that early retirees may need to have lower withdrawal rates since their retirement may be much longer than the standard 20-30 years of normal retirees.  Early retirees may need retirement funds to last  40-60 years depending on how early they retire.  More years in retirement means lower withdrawal rates.

Another reason is that average returns are now lower than the 7% that was the norm when the 4% rule was developed.  A more conservative return might be the 10 year treasury yield which is about 2.4%.   Lower returns mean lower withdrawal rates.

 Finally, the investment returns are lumpy.  While the average is positive, there will be some negative return years.  If those years occur early in the retirement, the impact could be devastating.   Negative return years mean lower withdrawal rates.

A good approach may be to start with a lower than 4% withdrawal rate and increase the number to 4% as one gets closer to normal retirement age and/or returns become closer to 7%.

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This is not financial or retirement advice. Please consult a professional advisor.

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