Summary
- I've learned about the 4% rule, which helps plan how much money to take from investments each year.
- The 4% rule says if I withdraw 4% each year from my balanced investment portfolio, I'll never run out of money.
- This works because the stock market typically returns about 10% on average.
- After considering compound interest, inflation, and recessions, the safe amount to withdraw is around 4% each year.
- To find out how much I can safely withdraw annually, I should multiply my invested net worth by 4%.
- For example, if I have $1 million saved, I could take out $40,000 each year without depleting my savings.
- This breaks down to $3,333 per month in withdrawals.
Video
How To Take Action
I would suggest considering the 4% rule for managing money in investments effectively. To begin, calculate how much you need to live each year, then use the 4% rule to see if your investments can safely support that amount. This means multiplying your total investments by 0.04. For instance, if you have $500,000 saved, you can withdraw $20,000 annually without worrying about running out of savings.
A good way of doing this is by setting up a balanced investment portfolio. This typically includes a mix of stocks and bonds, which helps provide reliable returns over time. Keep track of total investments and ensure they remain balanced by occasionally adjusting the proportions as needed.
To maximize this strategy, keep your living expenses in check and prioritize needs over wants. This involves budgeting carefully so that your withdrawals match or remain below the calculated 4% of your total investments. By focusing on essential spending, you can enjoy financial security without depleting your savings.
Lastly, stay informed about the market and economic trends, as these can affect your investments. Continuous learning will allow you to make better decisions and adapt to changing financial conditions. This way, you can steadily grow your wealth while keeping withdrawals sustainable.
Full Transcript
have you ever heard of the 4% rule the 4% rule says that if you draw 4% per year out of a balanced Investment Portfolio statistically and mathematically you'd never run out of money how can that be well the average return from the stock market is about 10% and you add to that the effect of compound interest and then subtract out the effect of inflation and recessions and then you end up with about 4% so from this we can calculate your annual safe withdrawal rate as your invested net worth times 4% so if you had a million in the bank you could safely pull out $40,000 per year and you'd never run out of money that's $3,333 per month thanks for watching and remember to subscribe for more videos just like this one
