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Be careful of the “rule of thumb”

April 04, 2018

It is not uncommon to sit in a meeting with a prospective client and have them say, “Using a 4% as a withdrawal rate on my investments, we think we have enough money for retirement.”

Any withdrawal rate is based on a set of assumptions. For example:

  • How is your portfolio allocated?
  • How much volatility is built into your portfolio?
  • What is the current interest rate environment?
  • What is the current inflation environment?
  • What is the current tax environment?

These are just some of the questions that need addressing. Looking at historical numbers can also provide false information. With interest rates still being at historical lows, academia is predicting a 2.8-3.2% withdrawal rate is more sustainable.

The secret to a positive financial outcome continues to be start saving early and consistently in your company plan or your self-employment plan. It is also important to save money outside of your retirement plan as the gains are treated to a more favorable tax rate.


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