A Big Reason the Famous 4% Rule May Not Work for Your Retirement

Core Insights - The importance of saving for retirement is emphasized, as Social Security may only replace about 40% of pre-retirement wages for average earners, and even less for above-average earners [1][2] - Having substantial retirement savings provides more options and reduces reliance on Social Security, especially in light of potential benefit cuts [2] - Strategic management of IRA or 401(k) withdrawals is crucial to ensure retirement savings last [2][3] Summary by Sections - Retirement Savings and Social Security - Social Security benefits are limited, covering only a fraction of pre-retirement income, necessitating additional savings [1] - The more savings accumulated, the less dependence on Social Security, which is critical given the possibility of benefit reductions [2] - Withdrawal Strategies - The 4% rule is a common strategy for withdrawals, suggesting a 4% withdrawal of savings in the first year of retirement, adjusted for inflation, aimed at lasting 30 years [3][6] - This rule is based on assumptions about spending patterns and investment mixes that may not apply to every individual [5][6] - Spending Patterns in Retirement - Retirement spending is often not linear; many retirees spend more in the early years to enjoy better health and mobility [7] - The 4% rule may not accommodate varying spending needs, as retirees might prioritize experiences like travel earlier in retirement [8]