Tuesday, May 19, 2015

The 4% Rule

When I stopped working and decided to live off the dividends from my portfolio, I did some research and one thing I came across was the 8%, 4% rule. This rule was meant to see retirees through a long term retirement without running out of money.

The 8%, 4% rule means that you should count on making 8% a year on your investments and you should count on spending 4% a year from your investments. This also means that what you have to spend each year goes up by 4%.

So, roughly, if you have at retirement a portfolio worth $1,000,000, you would hope to make $80,000 total return and spend $40,000. The next year you will start with $1,040,000 and expect to earn $83,200 and can take out $41,600. An expectation under this was that the portfolio would be a balance portfolio of stocks and bonds.

This recent article in the New York Times talks about the 4% Withdrawal Rule. The title is "New Math for Retirees and the 4% Withdrawal Rule". Basically the article thinks that we have to rethink the 4% rule because of low interest rates that are likely to persist for some time.

If you are near retirement and plan to live wholly or partially off a portfolio, this would be a very good article to read.

On my other blog I am today writing about Thomson Reuters Corp. (TSX-TRI, NYSE-TRI) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.


  1. I have yet to figure out how I am going to convince the bank(s) to let me withdraw only 4% when I convert my RRSP to a RRIF. Except for the 65 and under crowd, it will be more than a 4% wihdrawal.
    I wish the various blog personages would qualify the 4% as appling to TFSAs and non registered funds. It obviously has nothing to do with RRIFs once you are past 65. And with the older crowd much of our savings has been dutiful piled in to RRSPs of various flavours which must be converted to a RRIF or annuity. Unless you take it all out in one shot.

    The younger crowd will be much better positioned to apply the 4% rule if they sock the majority of their money in to TFSAs and non-registered accounts.


    1. Just because you have to take more out of your RRSP/RRIF accounts does not mean you have to spend it. I am putting excess currently in a TFSA and my Trading Account.

      I have an RRIF currently because it was pension money and the only way I could access the money was change the Locked-In RRSP to LIF.

      I was lucky that when I stopped working I had half my money in a Trading Account and half in RRSP accounts.

      But still my first remarks apply. Because you have to take money from RRIF does not mean you have to spent it.

    2. Agreed on the not having to spend it SP. In fact I hope to be able to do ar you are now, invest the excess, if any , back in to my TFSA. Thanks to Olive Oil for increasing that to $10K! Still the title of the article is the 4% rule.
      But still, the rules for RRIF withdrawals exceed 4% after 65 years of wisdom. So the premise that we can withdraw "only" 4% from our accounts is not realistic except for the TFSA and non-registered accounts.
      Again, saying we should withdraw only 4% when we are mandated to withdraw in excess of that is misleading. What we do with the excess, if there is any, is up to us. Spned it, save it but the withdrawal from the RRIF still exceeds 4%.