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The Volatility Buffer Strategy

The 4% Rule

How much can you spend in retirement without running out of money?

Typical financial advisors use the 4% Rule as a guideline to gauge the longevity of your retirement portfolio. It’s based on the Monte Carlo simulation, which determines the probability of being able to take continuous withdrawals from your portfolio at regular intervals without your balance hitting zero before you die. The 4% Rule states that you can withdraw 4% of your retirement funds each year and not have to worry about outliving your wealth.

For example: If you have a 401(k) or IRA with $1 million in retirement savings, you could take out $40,000, or 4%, per year and have about an 80% chance of not outliving your retirement fund.

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But what if the 4% Rule is wrong? 
 
According to retirement expert Wade Pfau, professor of retirement income and co-director of The New York Life Center for Retirement Income at The American College of Financial Services, the effect of the coronavirus and recent changes in the market have made the 4% rule obsolete. A better estimate for how much you can withdraw annually in retirement is 2.4%. Read professor Pfau’s recent article here. 
 
At 2.4%, if you have a 401(k) or IRA with $1 million in retirement savings, you would only be able to withdraw $24,000 per year in order to not outlive your wealth. 
 
Fortunately, mutual life insurance products can provide alternative sources of income to help you enjoy a more comfortable and financially secure retirement while buffering against market volatility. 
 
When it comes to funding your retirement, it’s not just about how much you can spend each year. When you take a distribution from your retirement fund also matters. We’ll explore this concept further in the next section, Sequence of Returns Risk. 

Your Financial Dreams Are Closer to Becoming Reality Than You Think

Conventional financial mindsets are failing too many people. We save, invest, and borrow the way Wall Street, banks, and the financial media tell us, but we are left unprepared for market losses, financial hardships, and retirement.
 
In Heads I Win, Tails You Lose, CEO and financial strategist Patrick Donohoe shares financial secrets used by the wealthy to navigate the rapidly changing economy.
 
Discover a new method for managing your money. It works for real estate investors. It works for business owners and entrepreneurs. It works for families. And it works at any financial stage, whether you’re looking to grow wealth, increase income in retirement, or leave a legacy for your heirs.
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About Paradigm Life

Paradigm Life helps you create customized financial solutions proven to reduce risk, increase growth, minimize taxes, and hedge against market volatility.
 
We believe in a better financial system. One that makes life more predictable. Your financial goals are our goals, and our Wealth Strategists are by your side every step of the way.
 
Since 2007, CEO, author, and The Wealth Standard podcast host Patrick Donohoe and his team have helped thousands of people efficiently grow their wealth and protect against market volatility.
 
Take control of your financial future. Schedule a free consultation and build your custom wealth strategy today.

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