Most people are familiar with the “4% Rule.” This post is not going to debate or debunk it. What the rule essentially does is start retirement out with conservative spending, and possibly end up with lots of money at the end. What I’ll do instead is demonstrate a method that closely monitors what you’re doing each year and shift spending prudently into those years your are more likely to enjoy what you may spend.
And yes, the method always* has a balance in older ages, one that depends – as always – on how much you spend or don’t spend during the early years.
The main issue with the 4% rule is that it is not a bad place to start. But … after that how does one transition into older ages? What’s the rule when you’re in the middle, or at the end, of retirement? The Dynamic Updating method is built upon these transitions since they’re integral to annually updating each subsequent year.
The advantage of the Dynamic Updating method is that it can compare itself to the 4% rule. You can tell, by measurement, how close to the edge of the cliff you are at any given moment in time – especially when markets are misbehaving.
The below article briefly explains the concepts. The blog post that inspired this article goes into more detail.
*Always IF you don’t spend the balance down all at once, and on prudent spending management during retirement years.
Original blog … How do Safe Withdrawal Rates compare to Dynamic Retirement Income? … that inspired my syndicated article.
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