The 4% Rule

Good Morning Everyone,

I get asked a lot of finance questions.

But this is one of the most common I get asked:

"How do I prepare for retirement?"

If you're in your 20s or 30s, retirement might seem far off.

If you're in your 40s or 50s, it might feel like it's just around the corner.

I define retirement as having enough saved and invested so that we never run out of money.

You can make retirement planning as simple or as complex as you want.

But it's a process we can all follow, whatever our age.

It's called the 4% rule.

The 4% rule says you can take out 4% of your investments each year during retirement without running out of money.

It helps you plan how much money you can spend without using it up too fast.

Let me give you an example.

Let's say you saved & invested a total of ￡500,000.

Here's how to use the 4% rule:

• Total of Investments = ￡500,000
• ￡500,000 X 0.04 = ￡20,000
• ￡20,000 ÷ 12 months = ￡1,667

That means you can spend up to ￡1,667 per month in retirement.

Now, this rule is not perfect.

There are many reasons why you shouldn't blindly follow it.

But the 4% rule is a great guide to focus your retirement planning.

It should only be used as a guide.

However, it does provide a target amount to save and invest.

And allows you to plan the retirement you want.

When you make plans for your money, it makes achieving them, so much easier.

Take Action Now

Today I want you to work out how much you need to save for your retirement.

Look at your monthly budget and multiply it by 12. Then multiply this by 25.?

For example, if you spend ￡2,000 per month, then is this ￡24,000 per year.

Multiplying your annual budget by 25 (reverse of the 4% rule) would mean you need ￡600,000 saved and invested in retirement.

This email is of course only the starting point. But if it has inspired you to take action, then head over to foundered.co.uk and check out all my articles where I cover retirement planning in much greater depth.

Or you can subscribe to the Foundered Money YouTube Channel where I break down each article in video format.

Have a great day!

Connor