Is Delaying Retirement at 70 Over a 4% Withdrawal Rule Smart?

A lot of people aim to retire early so they can enjoy life while their health is still strong. But in this Reddit post, we have someone in the opposite boat.

The poster is worried about a friend who’s getting close to 70 and is hesitant to fully retire. The friend is worried about running out of savings based on a 4% withdrawal rate, so they’re trying to work as long as possible.

Some factor for the friend to consider include:

• Longevity — their parents lived well into their 90s
• Inflation — living costs have been rising and could easily continue to do so
• Social Security cuts — benefits could shrink, hurting retirees on a broad level

The reality is that it may not be a terrible thing that the poster’s friend is continuing to work at 70. But it may also be more than possible for them to retire now. They may just need to make some adjustments.

The 4% rule isn’t gospel

Because the poster here doesn’t say how much money their friend has accumulated, it’s hard to know whether they’re safe to retire at 70. If they truly expect to live a long life, it makes a big difference whether they have a $300,000 nest egg versus $2 million.

But either way, a main concern of the poster’s friend is running out of money by using the 4% rule. And there’s an easy way to work around that — use a different withdrawal rate.

The 4% rule has you withdrawing 4% of your savings balance your first year of retirement. So if you have a $1 million nest egg, you’d take out $40,000 Year One. Then, each year, you’d adjust that $40,000 withdrawal for inflation.

The 4% rule is designed to make people’s savings last for 30 years. And based on the poster’s friend’s family history, it may be that they will need their money to last that long, even though they’re pushing 70. But the 4% rule could get them there.

And if not, they could always opt for a more conservative withdrawal rate. Financial experts have, in recent years, questioned the 4% rule given bond interest rates and other factors.

So it wouldn’t be unreasonable for the poster’s friend to adopt a 3% withdrawal rate, or 3.2%, depending on their income needs and comfort level. And that might help them feel better about their money lasting.

How to retire with more confidence

If the poster’s friend loves their job and wants to continue working, there’s nothing wrong with that. Why not continue to earn money if the work is enjoyable?

But it’s a shame for someone aged 70 to feel like they can’t retire if they’ve saved decently and actually want to stop working. So what the poster’s friend may want to do is find a financial advisor to talk to.

A financial advisor can help narrow down a withdrawal rate that works for this situation. A professional can also help the poster’s friend feel more confident in their finances overall by reviewing their needs versus what they’ve saved and coming up with a customized spending plan.

The post Is Delaying Retirement at 70 Over a 4% Withdrawal Rule Smart? appeared first on 24/7 Wall St..