The 4% Rule: Making your money last through retirement

In 1994 a financial advisor proposed "The 4% Rule."  According to this rule, a retiree with a portfolio composed of 60% stocks and 40% bonds can withdraw annually 4% of his initial amount, which is adjusted for inflation each year, and still have a 90% probability that his portfolio will last for 30 years.

For example, if your portfolio is $500,000, you can take out 4% or $20,000 in year one.  If inflation is 5%, then in year two you can withdraw $21,000.  And so on.   This is a reasonably good approach,

But we don't know the future, so it is a good idea to start with the 4% but be prepared to change your strategy if conditions change dramatically.

Here is a recent article from The Motley Fool on the subject.  (Please click on the image.)