Why This Popular Retirement Rule Is Wrong for You

Many people use what's called the 4% rule in planning for retirement. But even though the rule is easy to use, it doesn't always meet your retirement-income needs.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the 4% rule, noting that the danger with the rule is that a lot depends on the first few years after you retire. If the market suffers a big drawdown right after you retire, then the 4% rule can leave you dangerously overextended. But if the market starts a bull run, then the 4% rule might leave you short-changed. Dan suggests instead using a combination of asset allocation strategies and growth dividend stocks, citing Lockheed Martin , AT&T , and ConocoPhillips as examples of stocks with track records of boosting income. The regular growth in dividends can let your portfolio income keep up with inflation while also providing growth prospects that can make you more flexible in choosing how much to withdraw based on market conditions.

These stocks can help you break the rules
Your best investment strategy in saving for retirement is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

The article Why This Popular Retirement Rule Is Wrong for You originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.