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Throwing Out the 4% Rule

Posted on the 09 May 2014 by Smallivy

Throwing Out the 4% Rulesmallivy:

Retirement investing is never easy, particularly when bonds are paying nothing. Yet it is usually when planners say that they expect returns to be low for a long time that the big moves are made. That’s why it is best to stay invested while keeping the cash you need for the next few years in cash.

Throwing Out the 4% RuleOriginally posted on Michael Jones:

Throwing Out the 4% Rule

In 1994, a financial advisor named Bill Bengen published research articulating the “4% rule”,which became a landmark of retirement planning.The 4% rule postulates that a retirement nest egg can last 30 years if a retireewithdraws 4% of it per year (incrementally adjusted for inflation), given a portfolio of 50% stocks and 50% bonds. Bengen studied numerous 30-year stock market time spans to arrive at his theory, which many retirement planners took as a guideline.1

Lately, the 4% rule has taken quite a bit of flak. At age 20, it looks less and less valid. Why? Two factors leap to mind.

The return of significant volatility. Bengen came up with the 4% rule during the 1982-2000 bull market, the greatest extended rally Wall Street has ever seen. Across that period, the S&P 500 rose 1153.94% (and 2041.47% with dividends reinvested). The S&P’s annual total return

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