What is the 4% Rule?
A: It seems like even the people who seem to think that they know what the 4% rule is, and once they start talking, you kind of realize that everyone has a different impression of what the 4% rule is. And when you start actually digging into it, you discover that it isn't quite what anybody thinks.
What People Think The 4% Rule Is
The media and people have this idea that the 4% rule is, if I only took. 4% of my portfolio every single year. I would never run out of money in retirement. People have latched onto that idea from different studies, and when you start diving into it, you might start to question whether it's something you actually want to rely on.
Want to Learn More? Attend an Upcoming Class or Watch a Replay of a Previous Class Here.
What the 4% rule is really trying to do is predict the future.
And we both know, right? You can't predict the future. So then we start looking in the past, and we go, Okay, historically, things have happened. So if historically, if things continue to happen as they have and the future. Is like the past, then therefore this would be a safe number.Right? And now we're starting to read into the tea leaves. And so if you don't even know what the assumptions are behind the tea leaves that you're reading, then before you know it, right? You're, who knows what you're building on.
The 4% Rule Says You Need 25x to 30x Your Annual Expenses Saved
So when we think about the 4% rule, right? Another, another way of phrasing that is you've probably heard, you know, uh, save 25 to 30 times your annual expenses, right? That you should have, that your retirement number, that the amount that you should have saved should be 25 to 30 times what you spend in a year.Mm-hmm. . If you think about it 25 times, right? So if you took one and you divide by four, it becomes 25. Ah, yeah. So the 25 rule, 25 x rule, right, of 25 years or 30 years is essentially saying the 4% rule, right? It's a mirror image of that. Um, but it's for different reason. Um, and that's kind of where people come up with this number of how much money should you have saved up for retirement.It's based on this 4% concept that if you somehow took out only 4% a year, that you would be okay. Right? And. It's, you know, is it based on something? Well, let's talk about that. But that, that is what it's based on. It's based on this idea that if you somehow only took 4% a year, you would never run outta money in retirement.And let's just, you know, between the two of us, let's be honest, right? Realistically speaking, there's a lot of people who may not even have that much money in savings, right? They might not have 25 times their annual expenses save. So are we telling all of these people that they can't retire? Right. And if we're telling these people that they can't retire, Right?Well, reality has a different outlook. Right? Reality is, well, these people can't work anymore or they, they're not getting a job anymore. They get fired. Right? Or they're forced into retirement. Mm-hmm. . But now, right? So there's this whole world of people. Just, you know, they got to 65 or they got to 70 or whatever that year was, or they had an injury at work and it forced 'em to retire and they don't have 25 times their annual expenses saved.They don't have, you know, enough that they can take out 4% every year and be okay. So are we telling these people they're not safe, that they're gonna run outta money in retire? Um, and I think when we start diving into, you know, what, where the 4% rule came from and you start looking into it, you might question and say, Well, okay, maybe I don't actually need that much money saved in retirement.Maybe I could take out more than 4% and still be okay. 
Is the 4% Rule Something You Can Live By?
I think that as a rule of thumb, right, if you are, if you're trying to gauge whether you have enough money for retirement. if we only took 4% out of our portfolio, out of our life savings and that covered our expen