By: ET Money
June 08, 2023
Following the 4% withdrawal rule as a retiree ensures a steady income while also maintaining a sufficient bank balance that generates decent returns.
As per the rule, a retiree should withdraw 4% of his corpus every year. If your retirement corpus is Rs 1 crore, you can withdraw Rs 4 lakh per annum.
Considering 5% inflation, if you withdraw Rs 4 lakh in the first year, you can withdraw Rs 4 lakh 20 thousand in the second year and Rs 4 lakh 41 thousand in the third year.
This rule was formulated after analysing the performance of stocks and bonds from 1926 to 1976, covering a span of 50 years.
A research paper by William Bengen, who came up with this rule, revealed that an initial withdrawal rate of 4% enabled most portfolios to last 50 years or more.
Portfolios of those that fell short lasted for about 35 years or longer, which is good enough for the most retirees.
In this rule, life expectancy plays a key role. Some professionals advocate for a 3% withdrawal rate for a more secure approach, others believe that a 5% rate is also okay.
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