Just as each journey is unique, so too is each individual's retirement planning. The well-known 4% Rule, while a helpful guide, is not a universal solution. It's like leaping off a cliff and expecting everyone to land in the same spot - it doesn't take into account the myriad factors that can influence your financial landing. Let's explore why this rule may not fit everyone.
🏠🔄 Shifting Lifestyles and Costs
Your retirement is a new journey, and it's likely your lifestyle and costs won't mirror your current situation. The 4% Rule assumes an unchanging retirement spending, which isn't always the case. From new hobbies, increased travel, health costs, changes in family structure, to often overlooked long-term care costs - all these can drastically inflate your retirement budget.
📈💰 Variable Returns and Inflation
The strength of your financial leap - your returns on assets and inflation - can significantly affect where you land. The 4% Rule assumes a static portfolio, but in reality, asset allocations and returns can fluctuate. I dive deeper into my evolving portfolio (with a weighted average return from 12% in early years to 8.4% today) in this YouTube video.
🧮💡 Adapting Retirement Needs
Your leap's height - your living expenses - is likely to evolve over time. In the early days of my financial journey, with a living expense of $80,000 and a real return of 7.9% (12% discounted for 3.8% inflation), I needed $1 million. Today, to maintain a living expense of $140,000 and a real return of 4.5% (8.4% discounted for 3.8% inflation), I need about $3.1 million.
For my fellow number geeks, here's the detailed calculation👇
Remember, the 4% Rule is just a starting point. It's essential to adapt and align your retirement planning with your unique circumstances.
If you're uncertain about your financial leap into retirement, let's chart the best route for you together. Book a free consultation here: https://calendly.com/prudence-zhu/30min
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