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The 4% Rule

A quick and easy way to calculate how much money you need to save to become financially independent is to use the 4% Rule. This rule suggests that you can withdraw 4% of the value of your investment portfolio annually over a long period of time without completely depleting your capital*.

To estimate the size of the investment portfolio you need, take your annual spending and divide this number by 4% (or multiply by 25). For example, if you estimate that you will spend $80,000 per year in retirement, you will need to save $2,000,000 ($80,000/4%).

Some people think they will spend less in retirement which is often not the case. It is important that you consider what your life after work will look like. For many retirees, spending remains the same as they now have more time for travel and to engage in recreational activities and hobbies. Large expenses like home renovations and/or buying a vacation property should also be taken into account when calculating what your financial requirement will be.

*based on historical experience

This article is provided for information purposes only. Although the content is believed to be reliable when posted, Stonebrooke Asset Management cannot guarantee this information is current, accurate or complete and does not assume any liability. The information is not intended to provide any insurance, financial, legal, accounting or taxation advice and should not under any circumstances be relied upon without consultation about your specific situation. The information is subject to modification and updating from time to time without notice.

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