4% Rule for Retirement Withdrawals

Do you accept the 4% withdrawal rate for retirement assets as viable? What is your recommendation?

Also do annuity payments count in the RMD requirements at age 70.5?

Thank you –

SAVAGE SAYS: First, let me define the 4% withdrawal rate rule. It is generally held that over a long period of retirement (30+ years), an appropriately invested retirement fund (that must include at least some exposure to stocks), will allow you to withdraw 4% of your money each year (adjusted for inflation, making each year’s withdrawal slightly larger to offset inflation) — so you won’t run out of money before you run out of time!

Now, there is a bit of controversy over whether that 4% withdrawal rate might be too high — especially given the very low interest rates that the Fed has engineered, and the fact that many retirees have taken a very conservative stance holding money in these below-normal returns.

I think that 4 percent is still a workable rate — but you must take into account the potential for inflation to return at even higher levels (given all the global expansion of money and credit) and the need for your investments to keep pace.

If you want to use a more conservative withdrawal rate, of perhaps 3.5%, then it simply means you need more MONEY in your account!? You can do this kind of “monte carlo”modeling to determine withdrawal rates at most major mutual fund companies.

And, yes, if your annuity is INSIDE your retirement account (IRA), then you can start taking income from it, and it will count toward your RMD.