I Used to Think the 4% Rule Made Sense for Retirement. Here's Why I've Changed My Mind.

I'm working pretty darn hard to build up a retirement nest egg. I frequently spend extra hours hammering away at my desk to pad my long-term savings, and I've given up certain luxuries, like a bigger home, to be able to afford consistent retirement plan contributions.

Because of this, I really want my nest egg to last as long as I need it to. So rest assured that come retirement, I won't be taking withdrawals at random. Rather, I intend to have a plan.

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But that plan won't revolve around the famous 4% rule. And you may want to consider an alternative solution if you've been told to follow the 4% rule yourself.

Why the 4% rule doesn't work for me

Let's start by reviewing what the 4% rule entails. It basically states that if you withdraw 4% of your IRA or 401(k) plan balance your first year of retirement and adjust subsequent withdrawals to match the rate of inflation, your nest egg should last for 30 years.

That's a pretty comforting notion. But I also know that the 4% rule doesn't work for me in practice.

One problem I have is that the 4% rule assumes your retirement plan is split pretty evenly between stocks and bonds. While that sounds like a reasonable asset mix for someone in retirement, I'm not sure that's exactly how my portfolio will look.

The 4% rule also assumes that your expenses will stay the same throughout retirement -- hence the adjustments for inflation and nothing more. But I don't expect that to be the case.

I'm actually hoping to spend more money during the earlier stage of retirement, because I assume I'll be in better shape at that point to enjoy different experiences. And also, I assume that at some point, I'll have to replace a car, fix a roof, or cover another costly unplanned expense. I need a withdrawal strategy that builds in that flexibility.

You may want to look at different options

I'm not saying the 4% rule won't work for everyone. But I don't see it working for me.

Rather than commit to virtually the same withdrawal rate throughout retirement, I'd like to come up with a system that builds in more wiggle room. I also think that if there's a year when I don't have unplanned expenses or big plans, I'll withdraw considerably less than 4% of my nest egg to buy myself leeway.

I also don't intend to manage my nest egg on my own. I already work with a financial advisor to manage a portion of my portfolio, and I intend to turn to a professional for guidance on stretching the savings I'm working hard to accumulate. You may want to do the same, even if you're a financially savvy person.

All told, the 4% rule is an easy solution for managing retirement savings. I'm not going to tell you that you'll go wrong by following it. But what I will tell you is that coming up with your own plan may not only better serve your needs, but allow you to enjoy retirement even more.

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