If you limit annual withdrawals from your 401-K to no more than what percentage, your money should last indefinitely?

The choice of 4% as a safe withdrawal rate from a 401(k) for it to last indefinitely is grounded in research about sustainable retirement income. This rate is based on the "4% rule," which emerged from historical studies of investment returns and inflation. The concept is that by withdrawing 4% of your initial retirement portfolio (adjusted for inflation each year) allows you to fund your retirement without depleting your savings over a typical 30-year period.

The reasoning behind this percentage is that it strikes a balance between providing a significant income while allowing the remaining investments to continue growing, even after accounting for market fluctuations and inflation. This rule assumes a diversified investment strategy, typically including a mix of stocks and bonds, which historically have produced sufficient returns over the long term.

In contrast, lower percentages might be too conservative and not meet an individual's financial needs, while higher percentages could risk depleting the funds too quickly, especially in tough market years. Therefore, the 4% withdrawal rate serves as a guideline to maximize the longevity of retirement savings while providing a reasonable income stream.