The 4% rule has long been considered one of the simplest ways to estimate how much you can safely withdraw from your retirement savings over time.
Under the rule, you withdraw 4% of your portfolio during your first year of retirement and then increase that dollar amount each year to keep up with inflation
For example, if you retire with $1 million, under the 4% rule, you’d withdraw $40,000 your first year. If inflation rises 1%, you’d withdraw $40,400 the next year. And repeat.
It’s a pretty straightforward concept, which is one reason the rule has remained popular for decades. But the 4% rule has a big flaw you should know about before you decide to use it to manage your retirement nest egg. When you don’t fit the mold The 4% rule makes key assumptions about you as a retirement saver.