There’s no one right way to retire early. Some people manage to sell a business for a huge sum while others build passive income streams that allow them to leave their 9-to-5.
Many adherents to the FIRE movement — short for financial independence, retire early — aim to save a large portion of their income in order to build a big enough investment portfolio to withdraw from in perpetuity.
If you’re hoping to follow that model, or even if you’re aiming for a traditional retirement, new research indicates that you may be able to withdraw more from your portfolio each year — or build a smaller stash overall — than previously thought.
For years, financial planners and early retirees alike have relied on the so-called “4% rule” as a guideline. The rule, which says it’s generally safe to withdraw 4% of a balanced portfolio annually, adjusted for inflation, for a 30-year retirement was first described in a 1994 paper published in the Journal of Financial Planning by financial advisor Bill Bengen.
Bengen’s new book expands on his original research and, as a result, adjusts the safe withdrawal rate upward. For those still planning to take out 4% of their portfolio in retirement, “I think they’re cheating themselves a little bit,” he tells CNBC Make It.
