Withdrawal Rates & Sequence Risk

How much you take out, and when bad markets happen, can matter as much as average returns. Here is how the 4% guideline works and a real-returns example of sequence risk.

The 4% guideline

Research in the 1990s tested withdrawal rates against U.S. market history. It found that a retiree with a balanced stock and bond portfolio who withdrew 4% of the starting balance in year one, then raised that dollar amount with inflation each year, would have made the money last at least 30 years in every historical period tested. On $1 million, that is $40,000 in year one.

It is a planning guide, not a guarantee. Future returns may be lower than the past, and retirements longer than 30 years need more caution.

Unlock all of Investing School

The rest of this lesson, its chart examples and quiz are part of Investing School. Start free with Stock Market Fundamentals and the first lesson in every category.