The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”
In the Financial Independence Club, we’ve got a little shortcut that goes by names like “The 4% rule”, or “The 4% Safe Withdrawal Rate”.. or simply “The SWR”.
As with all things financial, it’s the subject of plenty of controversy, and we’ll get to that (and then punch it flat) later. But for now, for those new to the concept, let’s define the Safe Withdrawal Rate:
The Safe Withdrawal Rate is the maximum rate at which you can spend your retirement savings, such that you don’t run out in your lifetime.
That sounds nice and simple, but unfortunately it’s an unpredictable thing to nail down. After all, you don’t know what sort of rollercoaster rides the economy will take your retirement savings on, and you also don’t know what rate of inflation will persist through your lifetime. Will a box of eggs cost $6.00 a dozen when you’re 65, or will it be closer to $60? How can we possibly know how much money we will need to live on in retirement?(more here)
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