I'm Saying No to This Popular Retirement Rule. Should You?

Do you want to know the first thing I do with my paycheck each month? I send it into my retirement savings.

Would I rather be spending that money on something fun, or even something essential that my family needs now, like groceries? You bet.

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But I know how important it is to save for retirement.

A friend of mine recently called me in tears saying that she was about to write out a check to pay her father's rent because he couldn't afford it on his Social Security benefits alone. He doesn't have much savings, and he's struggling.

I really don't want to end up in a similar boat. So I'm making every effort I can to save now.

But I also know that building up retirement savings is only half the battle. I don't want to blow through my savings too quickly in retirement and end up broke later on.

That's why I plan to be mindful of how I manage my nest egg. And that means having a plan for taking withdrawals.

For a lot of people, that plan means following the 4% rule. But I'm not a fan. And you may want to say no to the 4% rule, too.

It's a popular strategy, but it's not for me

The 4% rule states that if you withdraw 4% of your nest egg your first year of retirement and adjust withdrawals in future years for inflation, your savings have a good chance of lasting for 30 years.

That's a comforting thought. But I'm not convinced a 4% withdrawal rate will give my nest egg the staying power I want it to have.

I have no idea what my investment mix will look like. But a volatile market might spook me into scaling back on stocks and going heavier than expected on bonds. If bond yields aren't great at the time, my nest egg may not generate enough growth to support a 4% withdrawal rate.

I also don't necessarily expect my retirement costs to be relatively equal every year. I'd expect to have to sink money into home repairs some years and deal with other expenses at different times. I need a withdrawal strategy that gives me more flexibility than having to stick to 4% with an inflation adjustment.

Carve out your own strategy

These are just a couple of reasons why I don't think the 4% rule will work for me. You may have different reasons.

But either way, I'd suggest playing around with different withdrawal rates to see what works for you. You can do this on your own, or with a professional's help.

And in the course of trying to figure things out, ask yourself:

• How long do I expect my retirement to last?
• What does my investment mix look like?
• What are my spending needs now versus my anticipated spending needs later?

You might ultimately land on a withdrawal rate that's not so far off from 4% a year. But it's best to get there on your own rather than follow a rule of thumb that's designed to apply to the masses.

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