The 4% Rule
After you reach retirement age usually around age 65, there is a very important decision to make with the money you have saved in a 401k account and an Individual Retirement Account. That is how much money should you withdraw annually? There is no official rule that says how much to withdraw in those first days of retirement. However, there is a "rule of thumb" to consider. The 4% rule, which simply means you should make withdrawals of 4% of the total amount you have invested in your 401(k) plan and IRA (Individual Retirement Account) annually. For example, if you have $500,000 invested in these accounts, you are able to withdraw $20,000 every year to meet your expenses and spending needs. The 4% rule is only a guideline, you are able to withdraw more money if you need it. But remember, this is the money you need to live on throughout all of your retirement years. With people living longer, you have to be mindful of the amounts you are withdrawing each year. This money has to last for you to have a comfortable retirement.