What does the term 'withdrawal rate' refer to in retirement planning?

The term 'withdrawal rate' in retirement planning specifically refers to the percentage of retirement savings that an individual takes out annually during retirement. It is an essential concept for managing retirement funds, as it helps retirees determine how much money they can safely withdraw each year without jeopardizing the longevity of their savings.

This rate is crucial because it impacts how long your savings will last, influencing financial stability during retirement years. A common guideline suggests a withdrawal rate of around 4% annually, though this can vary based on individual circumstances, market conditions, and specific financial goals. The other options presented address different aspects of retirement planning but do not define the withdrawal rate accurately.