The traditional IRA, Roth IRA, or company 401(k) are good long-term investing options.
However, if you were investing during the crashes of 1987, 2001, 2008, 2020, or 2022, putting money in the stock market can be scary.
You may have to take increased withdrawal amounts from your portfolio to keep up with inflation. This increases the risk that you’ll outlive your savings.
Your portfolio can be negatively affected if a bear market accompanies inflation.
Inflation worries more than 70% of people age 50 and older, according to a Kiplinger poll.
So, what’s the most appropriate amount to withdraw?
The 4% Rule
William Bengen, an MIT graduate and certified financial planner, developed the answer in 1994. He proposed the 4% rule.
Start withdrawing 4% from your retirement account the first year. Every year after that, you can increase the amount based on the inflation rate.
For instance, if you have a $1 million nest egg, you withdraw $40,000 the first year. You’d withdraw $40,800 in the second year if inflation was 2%.
The 10% Rule
The 4% method is as outdated as the 90s clothing styles worn when Bengen proposed it. Not only does inflation mean that you will need to increase your withdrawals, but your buying power from your income will always lag.
Investing in an income-paying ETF with a 10% to 12% yield and a monthly dividend enables you not to have to tap into your retirement savings.
There are several options, but JPMorgan’s Equity Premium Income ETF (JEPI) is a reliable one.
It is a covered call fund that’s based on the S&P500 and distributes dividends every month. With a consistent 10% yield, even in down markets, you can take monthly income that will extend your retirement savings account for as long as you need it.
Using the same $1 million account example, you can make $100,000 a year, or $8333 a month. These payments won’t affect your savings principle, so you won’t lose your buying power or have to lower your standard of living.
