How much do I need to retire? What is the 4% rule?
Video Transcript: How much do I need to retire? What is the 4% rule?
Hey everyone thanks for stopping by, I got another topic that I think is going to
0:06 be really interesting, or at least I get this question a lot so I'm assuming people find it interesting.
0:11 and that's just a simple question how of “how much do I need to retire?” And then there's this simple rule called the four percent rule that's out there. You
may have heard of it and we want to kind of talk through it and see if that still
makes sense and how applicable it might be.
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0:40 Anyway, “How much do I need to retire?” This is a loaded question everybody wants to
know especially if they don't like their job, right? So the first question or the
the first part of that solution might be, that if you just hate your job that much, maybe you should find a new job?
1:00 or at least reframe the job and how it works in your life and how it's important in your family.
1:05 You know there certainly is dignity in work and so I'm not here to say we need to rush to retirement and retire early.
1:13 There may be some ways to help make your work life more enjoyable by reframing it or maybe find a new job entirely. But there is going to come a point in time where your mind and body may not function quite like it used to and you may want to say hey I want to be able to retire and maybe that means you focus more on charitable work and spend more time with your grandkids.
1:38 You know there's a lot of things you can do in retirement without completely just sitting in front of the TV all-day
1:43 So once you've got kind of a vision of what your retirement could be, which is something certainly a good financial advisor can help you work through. If you're having trouble working through that on your own I would you know encourage you to talk to somebody to help you know kind of draw that out and figure out what that could look like.
2:01 But if you want to just get a baseline of, “hey how much would I need to retire?” Am I even close? Am I on track?
2:11 You know there's this thing called the four percent rule that has been out there for a while and it simply says if you just multiply 4% times your current saved Investments for retirement.
If you can live on that number then you would in theory be able to retire.
2:32 And so if you just took say $2,500,000, I'm doing this because it can make an easy round number of a $100,000 a year.
2:40 So $2,500,000 x 4% is a $100,000.
2:45 So if you can live on a $100,000 (per year), well then that number could be enough for you. Now this rule of the four percent there are a few different ways that it you can look at it.
2:58 If your Investments are going to grow at a higher rate than that some people might say “well why can't I take more than four percent?” well inflation is a real killer and so the four percent rule is there to help make sure that we're leaving some money in the portfolio to
3:17 grow, to continue to offset inflation over time. right? So if you can if you
just take out every penny that you make every year then over time what you make from your
3:32 portfolio is not going to keep up with the cost of living so you can certainly outspend your retirement dollars by taking out too much and so the four percent rule is there to try to mitigate that.
3:43 Now obviously rates have been very low and you know the stock market can be certainly uncertain as to what it could be in the short term and you know long-term returns can also be a little bit varied so the four percent rule may or may not make sense.
3:58 And if you also take into account things like the lifestyle that can vary from Individual, a four percent rule could be great for one person another person wants to travel a lot so it might not make sense for that purpose. So it's not customized I guess would be another way to say that.
4:19 Also it doesn't always account for longevity, right? If you're going to live a long time and you're talking about going 40+ years without working? Boy, you know a four percent withdrawal rate based on inflation and potentially hitting rough patches with a slow market could be potentially problematic. So you want to be able to work through those contingencies and again I would I would recommend working with a financial advisor to work through that
4:47 It also doesn't really account for how much money you might need at the end of your life to pay for some care. Whether that be you know in-home care or some Assisted Living care or what have you, that can be a big chunk of money at the end of your life and there may not be enough there if you've withdrawn too much.
5:03 And then the final thing is it may not leave enough both annually to be charitable with both helping out the family with various things or you know certainly charitable interests with the church and whatnot.
5:16 And it also might not leave a chunk of money at the end if you want to leave
5:19 something for your family or for the church so you know you really want to be able to
make sure you're working through numbers that are specific to your situation.
And making sure that you're having enough money to fit the goals that you want so the four percent rule can make a lot of sense as a baseline but it doesn't cover the whole story.
5:39 Another easy way to calculate that number if you want to go with the inverse would
just be to take the income that you think you want and multiply it by 25. So if you want the hundred thousand in income multiplied by 25 that gets you to $2.5 million. And if you want to go a little bit more conservative which you know could be beneficial would be the three percent rule. Again you do the same
6:00 thing multiply what you have by three percent if you can live on that then you know you could be able to retire. you could multiply it(your goal income) that would be times 33 so the same 100 000 that you want to live on you multiply that by 33 and that
6:15 gets you 3.3 million dollars would be what you would need to cover your retirement Nest Egg.
So I hope that's 6:24 helpful and again I would encourage you to talk to a financial advisor because this is not financial advice this is purely for information and education and I really
6:35 hope it gives you some insight as to what you should be shooting for. But to get more details in your 6:43 situation talk to a professional and if you want to reach out to me to talk
about that I would love to help you can 6:48 email me or contact me on my website. Again, it's Phil, Foundation Wealth Planning. I'm a CERTIFIED FINANCIAL PLANNER™ and love helping people work on their financial plan. And typically I work mostly with Catholics helping align
their finances with their values so along with retiring making sure the money is matching your life values so love to help thanks for stopping by and God Bless.
Phil Francois CFP®
Foundation Wealth Planning
phil@foundationwealthplanning.com
https://www.foundationwealthplanning.com/