3 Reasons the 4% Rule is the LEAST Efficient Retirement Income Strategy

(don’t forget to checkout the video of this blog too)

It is a generally accepted financial planning rule that you shouldn’t take more than 4% per year out of your investment portfolio as retirement income.

And this is NOT a strategy for preservation of principle.

It’s a strategy designed to maximize income but also protect your portfolio from longevity risk…

Which is simply the risk of living too long (or outliving your money).

But, because of the volatility of the market the 4% rule is VERY inefficient at yielding income for retirement.

That’s why I frequently talk about leveraging the income-paying ability of an insurance company.

This is the best way to maximize the guaranteed income of your retirement plan.

Here are 3 main reasons the 4% rule is the LEAST efficient retirement income strategy:

✅ Combatting Sequence-of-return Risk Requires Lower Income Payments

Because of the volatility of the market the income payout must be low enough to protect and preserve your portfolio to ensure that it last all the way until the end of your retirement.

This causes your income payments to be much lower than they could be by leveraging other income vehicles.

✅ Lacking Accessibility Due to Income Generation

Because your money must stay invested fairly aggressively to deal with the ups-and-downs of the market while generating income, you have virtually NO ACCESS to the money being used to create income.

This means that your money is “locked-up” with the sole purpose of generating income…

Leaving you not as much flexibility in retirement as you otherwise would have .🫢

✅ Still a 14% Chance of Running Out of Money in Retirement

The 4% rule still leaves you a 14% chance of running out of money in retirement.

This is why a lot of planners are even recommending a 3% rule rather than 4%.

This is why the optimal strategy for maximizing income, flexibility, and ensuring you won’t outlive your money is by leveraging an insurance company for income and the market for growth.

Let’s chat 💬😎