4% Rule for Retirement Income | Does It Still Work?

Updated : Sep 16, 2019 in Articles

4% Rule for Retirement Income | Does It Still Work?


Have you heard of the four percent rule when it comes to figuring out how you will live in retirement or that time that you reach financial freedom in this video I will be explaining what the four percent rule is and at the end of the video I will be sharing a workaround to the four percent rule that makes it even better Hi I am Camille Gaines founder of Financial Woman Dot Com and Author of Earn Grow Give I am a financial coach for women and I want to share with you about the four percent rule because it is super important to have a good feel for knowing how much money you will need when you reach that financial freedom day many people call it retirement you know what is right for you what works for you is based on how old you are and when this will happen and what your lifestyle is going to be like when it does happen so the four percent rule simply means that during financial freedom retirement you withdraw four percent of the amount that is in your retirement or savings account now where did the four percent rule come from well in 1994 a guy named William Bingen did an extensive study he was a financial advisor and he did this enormous study with an emphasis on the big bad bear market in the 1930s and again in the 1970s to see if people if their retirement would last if they were through four percent a year for X number of years and sure enough it worked he found that the conclusions of study that showed that never in history had a four percent annual withdraw depleted a retirement account portfolio completely in a period less than 33 years okay so the good news is that studies were the research included really bad bear markets you know I did not just consider the good times right it looked at the bad times too so that is comforting for investors I think what has happened since we had those nasty bear markets in the early 2000s and again mid late 2000s well a lot of people are questioning the validity of this four percent annual withdrawal rate not only that people are living longer and so if you retired at age 65 and in the study went 33 years into the future well you’re you’re late 90s but still with with extended lines due to medical care and different living styles you know you want to make sure your money is going to outlive you right instead of the other way around so a lot of people have questioned the four percent rule and a lot of studies and sort of you know changes to it have been have been done and so there are things that you can do to the great news is to change that four percent rule and enhance that four percent rule because who wants to spend their whole life saving saving saving and working and then in their golden years well if they live really frugally they will their money will n ot last long enough and that just does not that did not work for us so we looked at alternatives to that four percent rule and we started doing this in our 40s and so what we did and this is the punch that I wanted to share with you the kicker the little breakthrough or workaround for the four percent rule to make it better because it really does not sound that great right so what we did is we looked at alternative income streams that we could create starting in our 40s my husband was in his 50s early 50s that would enhance this four percent rule eventually when we get there to where we are withdrawing four percent and so let me give you an example rental real estate so if you look at rental real estate it’s pretty it’s very very doable that you can get a ten percent return on rental real estate and that is just that is even with financing that is not with with putting all your capital into it so if you can arm ten percent on an investment well you know compare that to a four percent withdrawal so we are sort of comparing apples and but I am trying to get you to think big picture on what the return that you can get from your money there are other examples of income such as consulting income that requires absolutely no capital at all and you can earn very very decent income from consulting income which is ideal for people that are midlife too late later in life or after retirement because you know we learn as we get older right so you see the gray hair we learn we learn about things and we are able to teach and share with others what we have learned over the years on a consulting basis net that is a hundred percent roi because there is literally no cost involved if you have not seen my other video that I did on that on how to start a small consulting business in midlife late midlife then please be sure to watch that so what I want to share with you in summary is the four percent rule means that you save your life and then you would draw four percent after you retire of your investment account you would be withdrawn four percent to live on and of course you would have other investments or other skimming income such as hopefully social security and anything else that you might happen to have you might have some dividend income from bonds or excuse me at some interesting come from bonds or dividend income from stock but as we have seen gosh they have just been so low for so long now so can you count on that so the four percent rule is saying you’re going to take four percent out of your investment account to live on during retirement or financial freedom and what I am saying is yeah but what about creating some income streams that can enhance that so that you can enjoy life a little bit more and you know open some new doors as you approach retirement so that you have laid the foundation for some nice income streams in addition to that four percent withdrawal if you choose to do that when if and when you need to that is what I wanted to share this video if you found it helpful I woud love it if you would like the video and be sure to subscribe to my channel

3 Comments

  • What I took away from this video is not what I was looking for. It seems she is saying, "Find another source of income DURING retirement." Well, hell, just about ANYTHING will work if you continue working after "retirement". That's not really retirement, then! That's not my plan, however. I was hoping she was going to offer a more creative formula other than the 4% rule. Instead – she's suggesting ways of gaining additional income which is code for "keep working".

  • You need more passive income when it’s time to retire. Not try and start up a business, that is opposite of retiring. Who wants to retire to become a landlord? Not me. People like you are just trying to start a YouTube business to create passive income, when you are not making good points, just publishing content that makes no sense and doesn’t seem sincere. Just my opinion.

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