Does the Four Percent Rule Work for Everyone, Probably Not

RetireesMost people that are near the age of retirement might have heard the now famous 4% rule. It is a guideline for turning savings from IRAs, 401(k) plans and other financial accounts into income for retirement.

It gives a quantified figure of the amount of money that can be taken sustainably from savings annually.

However, like most rules of thumb, it is not fool proof. For instance, stock market returns during down periods just prior to or after retiring could be factors that make it or break for that form for income strategy for retiring.

In addition, accounts for retirement that fall well short of $1 million, which the majority do, the 4% withdrawal rule does not make a great deal of sense.

It is a guideline for specific circumstances, does not always apply and is not fool proof.

The 4% withdrawal works this way. If you have a value of $1 million in the bank, then you can safely spend up to $40,000 per year and not run out of your money prior to death.

Here is the tough part, the majority of people do not have that amount of money or anywhere close to it. Most people today are lucky if they have saved 6 figures for their retirement.

A survey in 2014 from found that over 25% of Americans 50 to 64 years of age did not have any savings for retirement at all.
The average value of account for retirement for between 55 and 64 is just $103,000 according to the U.S. Federal Reserve.
That means half of the people have more, while half have less. Households that were between 65 and 74, had accounts that averaged $148,000.

That includes only the homes that have any retirement accounts, which are only 49.3% of the U.S. population.

However, not everything is so bad. Though most are not millionaires, most households have between $30,000 and $50,000 in income annually from pension payments and social security.

The average payment for Social Security is $15,500 annually. Therefore, a married couple could possibly have $31,000 just from Social Security.

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