Withdrawal rate
A withdrawal rate is the percentage of a portfolio you take out each year to live on.
The withdrawal rate is the heartbeat of retirement planning. Take out too much and the portfolio may not last. Take out too little and you leave life unlived.
The famous 4% rule came from a 1994 study using US historical returns. It suggested that withdrawing 4% of the starting portfolio in year one, then adjusting for inflation, would survive a 30-year retirement most of the time.
A 3% to 3.5% rate is often used for longer retirements or portfolios with lower equity exposure. The right rate depends on your situation, not a universal rule.
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