As market pressures threaten lower returns on investments, experts are making changes to a popular retirement financial strategy, The Wall Street Journal reported Nov. 12.
The 4 percent rule is conventional advice for retirees, stating that retirees should spend no more than 4 percent of their savings from their investment portfolio in the first year of retirement and adjust the amount annually to keep pace with inflation. It came about in the 1990s and was adopted as the rule of thumb for many people.
However, after an extended period of above-average returns on investments, future returns are expected to be lower. A report from investment firm Morningstar has calculated that the rule should change to 3.3 percent instead, given that 4 percent may no longer be feasible. However, with current inflation at a high, even 3.3 percent could be high.
"It's counterintuitive, but when the stock market and stock valuations are high, it's the worst time to retire," Christine Benz, Morningstar personal finance director, told The Wall Street Journal.
"Many of today's retirees will have to be more resourceful to support their income needs," read the report.