The “4 percent rule” is a bedrock of retirement planning. But does it apply to those who quit working before 65? The rule of thumb holds that retirees who spend only 4 percent of their investment portfolio annually, adjusted for inflation, will be able to stretch out their savings for the rest of their life. For example, a $1 million brokerage account gets you $40,000 a year to spend.
Lately, the 4 percent rule has been under assault, with experts warning that the future could bring weaker market returns, an increased life span, or both. “If you retire at 40 with a couple million dollars, you’re going to worry—about financial emergencies, taxes, inflation, market crashes, and the chance you’ll live a lot longer than you’d planned for,” says Robert Karn, an adviser with Karn Couzens & Associates in Farmington, Conn.
by Ben Steverman, read more in www.bloomberg.com