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GOBankingRates’ editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines<\/a> and our products and services review methodology<\/a>.<\/p>\n 20 Years<\/strong> Trusted by<\/strong> As there\u2019s no way to predict investment returns, inflation rates<\/a> or longevity, the fear of running out of money in retirement is a real concern for most seniors. To help alleviate this fear, financial advisors often recommend that seniors withdraw no more than 4% of their retirement funds annually, adjusted for inflation. The idea is that at that rate of withdrawal, there\u2019s a very high probability that your money will last for at least 30 years in retirement. <\/p>\n But for 2026 and beyond, experts have begun suggesting that a withdrawal rate of 4.7% might be more appropriate. Here\u2019s the story behind the new recommendation and what it might mean for your retirement spending<\/a>.<\/p>\n<\/p>\n What\u2019s the Math Behind the 4.7% Withdrawal Rate?<\/p>\n If you have a $250,000 portfolio, a 4.7% withdrawal rate means you could safely take out $11,750 in year one of retirement. This number is adjusted for inflation annually to maintain your standard of living. So if inflation runs 3% in year one, it means you could safely withdraw $12,102.50 in year two.\u00a0<\/p>\n Why Have Experts Boosted the \u2018Safe\u2019 Withdrawal Rate?<\/p>\n There are a few reasons why the \u201csafe\u201d withdrawal rate in retirement has jumped from 4% to 4.7%.<\/p>\n The first is that investors have a wider variety of higher-paying options than they did in prior decades. While interest rates fluctuate over time, for the most part, they are higher now than they were in the 2010s. And while retirement savers in past decades often had to rely on Treasury bills and brick-and-mortar bank savings accounts, they now have access to higher-paying options like high-yield savings accounts<\/a>. These accounts are still FDIC insured but typically pay 10 times or more what savers earn with traditional bank accounts.<\/p>\n Another reason is that many seniors are willing to pick up side gigs or part-time jobs to supplement their income in \u201cretirement.\u201d Even a relatively modest boost in income can take immense pressure off a retirement portfolio to provide enough retirement income.\u00a0<\/p>\n A third reason is that financial planning has become more advanced. Advisors and their clients now understand that they may have to adjust retirement spending patterns in line with real-world investment results. Cutting spending when markets and\/or income fall, for example, is a way to extend the longevity of a retirement portfolio.<\/p>\n How To Protect Yourself If You Jump to a 4.7% Withdrawal Rate<\/p>\n The best retirement plans come with \u201cguard rails\u201d to help ensure that even bad investment results don\u2019t derail your entire retirement plan. The 4.7% rule in and of itself is designed to protect retirees from outliving their money. But if you build some flexibility into your plan, you can help avoid the scenario where you run out of money too early. <\/p>\n Here are some steps to take.<\/p>\n Build an Emergency Fund<\/p>\n The last thing you want to do is take money out of your retirement account for unscheduled expenses. Doing so will disrupt your projections and could leave you with a major shortfall by the end of retirement. This is why having a substantial emergency fund<\/a> is absolutely essential if you\u2019re on the 4.7% withdrawal plan. Three to six months\u2019 worth of expenses is a good start, but if you\u2019re planning on a 20- or 30-year retirement, shooting for a year or two may not be excessive.<\/p>\n Adjust Your Withdrawals Based on Market Returns<\/p>\n One of the biggest risks of the 4.7% withdrawal plan is that you suffer through a major market selloff in the early years of your retirement. If you retire with a $1 million portfolio and your portfolio drops 10% in the first year, you\u2019ll only be left with $900,000 as you\u2019re beginning your withdrawals. This could dramatically shorten the sustainability of your nest egg.<\/p>\n One strategy to minimize the damage of bad investment performance is to adjust your withdrawals based on how your account performs. In years when your income or appreciation are down, you can take your withdrawals down as well. This, of course, means that you\u2019ll have to adjust your spending downward as well. But having this flexibility is one of the guard rails that can keep your retirement plan on track. Typically, markets recover relatively quickly, so you should be able to restore your original withdrawal levels the following year in most cases.<\/p>\n Don\u2019t Take the Full Inflation Adjustment Every Year<\/p>\n![\"\"](\"https:\/\/cdn.gobankingrates.com\/wp-content\/uploads\/2023\/11\/icon-20.svg?webp=1&quality=75\"){kind=icon}
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