Wealth and Wisdom: Week of February 24, 2025
- Mike Brown
- Feb 24
- 5 min read
The so-called “4-Percent Rule” is among the best known rules of thumb in personal finance. It guides investors in determining how much they can withdraw from their nest eggs each year in retirement without exhausting their savings. It’s also been a subject of constant debate within the financial services industry since its creation more than 30 years ago.
I remember reading that research 30 years ago, and I’ve kept up with the ongoing debate ever since. Academics – people who don’t actually work with clients and aren’t held responsible for the advice they give – love to tinker with the original formula, changing what they consider the sustainable withdrawal rate to be every time the market, the economy, or the political environment changes course.
I have several reservations about following the 4-Percent Rule with the clients we advise:
First, it’s a blunt instrument, too blunt to use to make such important spending decisions. People who’ve worked and saved all their lives deserve better than that.
Second, how can you call something a rule in the first place when you keep changing it? Imagine you decide to retire based on the 4-Percent Rule only to see it become the 2.5-Percent Rule a year or two later?
And finally, I’m skeptical of any strategy that requires the systematic liquidation of your life’s savings – hoping you die before your money runs out.
You’re heard of the 4 Percent Rule, right? But do you follow it yourself? Do you know anyone who actually does? With your help, I’d like to run a little unscientific poll this week. Simply reply to this email and tell me if you use the rule to guide your spending in retirement. And if you believe it’s working for you, feel free to tell me why.
I’ll report the results in next week’s Wealth and Wisdom.
Apparently, the financial research giant has now decided to change the number every year. (Reading time: 3 minutes)
So, what happens when the IRS requires you to withdraw more money each year than the 4-Percent Rule allows? (Reading time: 5 minutes)
No one can consistently and accurately predict when the market will change direction – but that doesn’t mean you shouldn’t prepare for it. (Reading time: 6 minutes)
Elite endowment funds loaded up with fancy, high-cost “alternative” investments in the interest of sophistication – and are now paying the price. (Reading time: 4 minutes)
What really drives the markets doesn’t change every day – but over time these trends can make a huge difference. (Reading time: 3 minutes)
If you’re afraid Congress won’t act in time to keep Social Security from cutting benefits, here are some things you can do to be ready. (Reading time: 4 minutes)
If you get a text that appears to be from the IRS about a $1,400 stimulus check they want to send you – swipe it left. (Reading time: 2 minutes)
Being ready to file well ahead of the deadline can save you time, money, and headaches. (Reading time: 4 minutes)
Your modified adjusted gross income (MAGI) determines whether you qualify for tax credits, IRA deductions, Roth IRA contributions, and more. (Reading time: 5 minutes)
These profits aren’t taxed like other income – but they can impact everything from your tax bracket to what you pay for Medicare in retirement. (Reading time: 5 minutes)
Words to the Wise
“Two super-contagious diseases - fear and greed - will forever occur in the investment community. The timing of these epidemics will be unpredictable. We simply attempt to be fearful when others are greedy - and to be greedy when others are fearful.”
– Warren Buffett
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