Why I Would Choose Dividends Instead Of The 4% Rule

Summary

• The 4% rule, created by William Bengen in 1994, suggests retirees can withdraw 4% annually from their portfolio for a sustainable retirement. However, this strategy has flaws.
• While index funds offer low fees, diversification, and tax efficiency, they limit potential gains from unique market opportunities and higher income generation.
• Investors should consider diversifying beyond index funds to capitalize on macro trends, technological innovations, and sector-specific opportunities for superior returns.
• By building a portfolio of dividend paying stocks, you have the potential to outperform while creating a supplemental income over time.

redstallion/iStock via Getty Images

Brief Overview: 4% Rule

If you've never heard of the 4% rule, it is a strategic approach that turns retirement planning into a simple math equation. The idea is that a retiree should be able to withdraw 4% of the balance of their retirement

Analyst’s Disclosure: I/we have a beneficial long position in the shares of HTGC, EPD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.