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The 4 Percent Rule and Your Estate Plan


For as long as you have had an income, you have probably been hearing that you should pay yourself first.  This principle applies to estate planning, too.  A successful estate plan requires you to have enough money save to last for the rest of your life, at least.  The question of how much money you should save for retirement does not have a simple answer, and it varies from one person to another.  Financial planners often advise clients to save enough money to cover their expenses for 30 years of retirement.  One consideration that will figure out how much you need to save is to anticipate what your expenses will be.  Another is the 4 percent rule, made famous by the financial planner William Bengen.  When you meet with a Hillsborough County estate planning lawyer, your lawyer will help you strategize about your retirement saving goals.

What Is the 4 Percent Rule?

In 1994, William Bengen began advising his clients of the 4 percent rule.  The rule goes that you should save enough money that, if you withdraw 4 percent of your retirement savings each year, the money should last you 30 years.  In practice, this requires you to recalculate the amount each year, based on inflation and interest rates.  It assumes that your savings are in the form of treasury bonds and large-cap and small-cap stocks.  Bengen found that whether the clients had 40 percent of their investments in stocks, 70 percent, or anything in between, withdrawing 4 percent each year would make their savings last at least 25 years.

Recently, Bengen has started encouraging his clients to save enough that they can afford to withdraw 4.5 percent per year without dipping into the principal too soon.  This is because interest rates are much lower now than they were in 1994.

Living Within Your Means During Retirement

One of the most rewarding things about retirement is that it offers a welcome respite from the lifestyle creep that plagues many people throughout their working years.  Accumulating enough savings to last through 30 years of retirement does not always mean that you have to save a huge amount of money.  The expenses of retired people are generally much lower than those of working people.  Will you stay in the house where you have lived for years once the mortgage is paid off and enjoy the debt-free fruits of your labor?  Will you sell the McMansion where you raised your children and move to something smaller and more affordable?  Do you really need to be a two-car couple in retirement?  Building up your savings and reducing expenses go together in retirement, just as they do when you are working.

Contact an Attorney Today for Help

Consulting a Tampa estate planning lawyer now for a multi-faceted perspective on how much money you need to save for retirement and how to meet your retirement savings goal.  Contact David Toback for help today.





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