The 4% Rule - Does it work?

Saving for retirement can be daunting but the 4% Rule is here to help. The 4% Rule is one of those rules that is mentioned by personal finance YouTubers to financial professionals alike. However, where does it come from and is it suitable for you?

Following on from my last video I got a lot of questions about the 4% rule and whether it was still relevant (link to video here:    • Millennial retirement - Are they being del...  ). For many (especially millennials) retirement is a whole lifetime away, so understandably it can be hard to know how much money we will need to maintain a high quality of life through retirement but not run out of money. A simple rule that is widely used is called the 4% Rule which is used as a guide for retirement.

The 4% Rule is a rule that states 4% of your retirement portfolio is the safe amount of money that is able to be paid out each year so that your investments don’t run out before you die. The rule was the creation of William Bengen in 1994 who analysed retirement portfolios to advise on the safe rate people could pay themselves from their investments in retirement. Bengen ran analysis from 1926 to 1976 over a number of scenarios of different stock allocation to make sure that the funds lasted for a minimum of 30 years.

Being over 25 years old many wonder if the 4% Rule is still relevant. It is always difficult to know if a rule in personal finance is still relevant for the generation retiring today or into the future like millennials. Hindsight is a wonderful thing but the beauty of the 4% Rule is that it give you a target to aim for so that you can save and invest for the long term.

📹 Other videos:

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UK ISA Explained 2020/21 -    • UK ISA Explained 2020/21 (Cash ISA, Stocks...  

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