March 18, 2015

Retiring on the 4% rule can be wise. What is this thing? Why should you stay below it in retirement/escape from work?

4 thoughts on “March 18, 2015”

  1. Garrett Haag says:

    The 4% rule is a guideline to drawing out retirement funds. If you only take out 4% a year from your funds they will continue to grow at a rate that will stay close to what is being removed so your balances will not fall by much. If you manage to stay in the 4% your funds will not fall as much and your money can last much longer in retirement. If you manage this you will be able to have a nicer retirement and not have to worry as much about funds.

  2. Elizabeth Barske says:

    The 4% rule is a rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. The withdrawals will consist primarily of interest and dividends so that your account balance is only decreasing by a small amount each year and will last you many years to come. This way, you are letting your money ‘do the work for you’ by earning interest and dividends on itself that will fuel next year’s withdrawal and you will not have to return to work later in life.

  3. Axel says:

    The 4% rule says “make withdrawals from your savings less than or equal to 4%/ year and live off that amount of money.” “The Market” historically returns on average 8% per a year. If you take into account inflation of 2%-3%/year and you withdraw 4% on average you should have the same or more in your savings at the end of the year. A simple Illustration. If you have $100 in “The Market” and it grows 8% a year you’d end the year with $108, except you also withdraw 4% a year or $4. So you subtract those and end with $104 at the end of the year even though you have withdrawn $4. Also if inflation was 2% your $104 is now worth a little more than your $100 was at the beginning of the year. To do this math with more representative numbers for retirement assume $1,000,000 in the market. It would grow to $1,080,000 in the year. You’d withdraw $40,000 to live off. You can definitely live off $40,000 a year. You can do this to eternity and beyond, never having to worry about making money again! Put your money to work for you.

  4. Mike Finley says:

    Well said, everyone. I have nothing further to add.

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