How the 4% RULE works
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O The confusion that a good part of the clients I work with privately have is as follows: "Ovidiu, I understand that I have to wait 15, 20 or 30 years to accumulate an Investment Portfolio that will ensure my Financial Freedom. But how do I even use that money?"
Well, aside from that, some argue that if your Investment Portfolio has an average annual return of 8%, it means that you can withdraw the entire gain obtained to pay your recurring expenses.
On the other hand, some believe that when you retire from activity you have to sell your entire portfolio. And then you spend 4% of the resulting amount each year.
And a third category believes that the best strategy to live off of investments is to leave the Portfolio alone and withdraw 4% of it each year.
While all three strategies sound reasonable, I fear they are incorrect.
The 4% Rule, which states:
“To reduce the risk of running out of money over a 30-year “retirement period,” it would be advisable to withdraw a maximum of 4% of the value of your accumulated Investment Portfolio in the first year of “retirement.” And then, each subsequent year, index that amount to the inflation rate.”
If you follow this rule, you shouldn't have any money problems in the first 30 years of retirement.
⏲️ TIMESTAMPS ⏲️
00:00 - Intro
02:16 - The mistakes of the three strategies for using money in the portfolio
05:49 - What the 4% Rule says
08:36 - Limitations of the 4% Rule
10:43 - Conclusions
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