The 4% Rule actually makes retirement?

Many people would know the 4% rule, but just knowing this would actually make retirement?

The 4% Rule. What is it?

"If you withdraw 4% of the money in the first year, and then in the next year, adjusted for inflation, you have a very high chance that it will be enough for at least another 30 years." Or

"If you want to retire, you need enough principal to support you forever," using 25 times the annual cost. "

The simple way to calculate this rule is to reverse it from "cost per year."

Calculate the annual cost: Suppose you plan to spend 30,000 baht per salary. One year you will spend 30,000 * 12 = 360,000 baht.

Take the annual number times 25.

The result: You need the first sum of 9,000,000 baht. If you have 9 million baht and withdraw 4% (360,000 baht) in the first year, you will retire comfortably.

But in fact, retirement planning is not that simple, because if it were that simple, the number of people who retire comfortably would be much greater.

There are five issues we need to focus on:

1️⃣ fragile 10 years, that's the first five years before retirement and the five years after retirement, because if the portfolio we're preparing for retirement goes wrong, the returns are terrible, the losses are very difficult, because there's no time to make excuses. This is the "Sequence of Returns Risk."

For example, a prepared port of 10 million lost 20% to 8 million in the last year before retirement, where we have to start withdrawing money that is not enough anymore.

2️⃣ Retirement planning is not an Investment Strategy, because the subject of Retire must be a whole system design, whether it is a matter of

Target 👨‍🦳 - Age to retire, life expectancy, expenses, lifestyle

Work 👨‍🦳 - Returns earned at work before retirement, either Provident fund or Social Security system, work compensation.

👨‍🦳 Prepared Assets or Tools - Pension Insurance, Health Insurance

👨‍🦳 inheritance.

Many 3️⃣ will focus only on the amount of money that needs to be reached before retirement, but they will actually have to be divided in the initial planning, called the "three-story port structure," each step is spent differently to separate the money needed from the Lifestyle money.

1) Floor layer is used for necessary expenses. Use pension insurance, social security pension and insurance rebate to pay for food, water, electricity.

2) Income layer is the additional cash flow without reconciling the market by using bonds, debentures, rents to reduce the need to sell property during the market.

3) Upside layer is used to pay various unnecessary expenses, social expenses, travel expenses, shopping expenses using global stocks or dynamic ports.

4️⃣ Divided Portfolio Money After Retirement - Strategy 3 Bucket Strategy Separate Money Use In Three Baskets It is a low-risk, medium-risk, high-risk port used to help determine the order of withdrawal, prevent the sale of shares during critical markets.

5️⃣ 4% withdrawal or a fixed rate every year can result in insufficient money because of the Sequence of Return Risk. Therefore, the withdrawal should be adjusted according to market conditions. If the market goes down, the cost of the Lifestyle should be reduced, called the Dynamic Withdrawal Strategy.

"A good retirement is to do whatever you want, not give you all the money before you leave, not the highest reward."

Credit: Young WealthGuru