Is the 4% Withdrawal Rate Safe for My $1 Million Settlement When I’m Disabled and My Husband Expects Help?

A disabled Reddit user is living off of her settlement money because she is unable to work. She wants to make sure to preserve the money that she has because she can’t earn a living, so she’s been maintaining a 2% withdrawal rate. However, her husband (who she maintains separate finances with) wants her to contribute more to paying the mortgage on the condo he owns that the couple is living in together. 

The poster wants to know if it would be safe to follow the 4% rule and withdraw 4% from her account so she can contribute more and address her husband’s financial worries. However, since she is young and her settlement will need to support her for longer than the typical retiree, she doesn’t know if withdrawing such a large amount would be safe, especially given that the 4% rule is typically aimed at making sure your retirement money lasts for 30 years.

So, what should the poster do? Should she start taking more out to make more of a financial contribution, or does she need to protect this money since her future income is capped and these funds may be the only thing keeping her secure?

Should the poster take out more money from her settlement?

Many of the Reddit users urged the poster to prioritize her own financial security, rather than paying a mortgage on a condo that her husband owns independently and that is not part of their shared property. Those who replied also expressed the sentiment that her husband should adjust his expectations for what contributions she can make given her disabling condition and the limitations that it imposes on her employment. 

While a few people did seem to think that she might want to look into options to help her husband more financially, including exploring alternative investments that would provide more flexibility, most people thought that there were problems with the way the conversation about money is being handled.

In fact, some even suggested marriage counseling so the couple could get on the same page about how they want to manage their shared life, given the wife’s health issues and her reliance on the settlement money.  

Is the 4% rule safe?

If the Reddit poster and her husband can get on the same page and the poster decides she does want to invest more, the big question that she has is whether taking out 4% is too much. That’s a hard question to answer, as no one can predict the future or what returns will look like going forward.  However, all evidence points to the fact that taking so much out is risky.

The 4% rule says that your retirement funds should last at least 30 years if you withdraw 4% in year one of retirement and adjust upward for inflation thereafter. The poster already pointed out she needs her money to last longer than 30 years, so this is the first problem with her potentially upping her withdrawals. 

The other problem is that Morningstar Experts have revised this rule and now say that a 3.7% withdrawal rate is more appropriate to ensure your money lasts, given longer future lifespans and lower projected returns. So, the Redditor has very valid reasons to be concerned about how much her husband wants her to take out of her settlement funds.

Ultimately, the best thing to do here would be to go talk with a financial advisor. The poster can get personalized help, find out how she can make her settlement last for as long as she needs it, and can work with the advisor to choose a safe withdrawal rate that gives her the money to make desired contributions to the family’s finances without jeopardiing her long-term security going forward. 

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