{"id":1147329,"date":"2019-11-01T12:22:36","date_gmt":"2019-11-01T18:22:36","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=108238"},"modified":"2019-11-01T12:22:36","modified_gmt":"2019-11-01T18:22:36","slug":"make-your-money-last-forever-with-2-simple-rules","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1147329","title":{"rendered":"Make Your Money Last Forever With 2 Simple Rules"},"content":{"rendered":"

This post Make Your Money Last Forever With 2 Simple Rules<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

\"NilusDear Rich Lifer<\/em>,<\/p>\n

<\/p>\n

You\u2019re probably familiar with the \u20184 percent rule\u2019 and \u2018Multiply by 25\u2019 rule.<\/p>\n

If you haven\u2019t heard of these rules, don\u2019t worry! I\u2019ll explain in second.<\/p>\n

But first, I\u2019m willing to bet that those of you who have heard of these rules are getting them confused.<\/p>\n

Multiply by 25<\/strong><\/h3>\n

The \u2018Multiply by 25\u2019 rule estimates how much money you need to retire worry free.<\/p>\n

Here\u2019s how it works: multiply your annual expenses by 25.<\/p>\n

That\u2019s it. Simple right?<\/p>\n

For example: if you estimate your annual expenses in retirement will be $40,000, you will need $1 million saved in your retirement portfolio ($40,000 x 25 = $1mm).<\/p>\n

If your lifestyle is a bit more extravagant and you spend $70,000 per year, you\u2019ll need $1.75 million ($70,000 x 25 = $1.75mm).<\/p>\n

Notice that this rule doesn\u2019t take into account any other sources of retirement income, like Social Security, pensions, rental properties, etc.?<\/p>\n

This is because the rule was created for early<\/em> retirees, who likely won\u2019t have access to Social Security or pension income until later.<\/p>\n

Since you will likely have some form of guaranteed income if you\u2019re already close to retirement age, you can easily adjust your annual expenses accordingly.<\/p>\n

For example: if you expect to receive $20,000 from Social Security, your nest egg will only need to cover $50,000 in expenses (instead of $70,000). Your retirement goal would then be adjusted to $1.25 million ($50,000 x 25 = $1.25mm).<\/p>\n

The \u2018Multiply by 25\u2019 rule also assumes your portfolio will generate a 4 percent return per year. It\u2019s estimating that stocks will produce an average return of 7 percent per year.<\/p>\n

If that 7% figure is accurate, and we assume inflation keeps pace at roughly 3 percent per year, then your return \u2014 after inflation \u2014 will be about 4 percent.<\/p>\n

Then What is the 4 Percent Rule?<\/strong><\/h3>\n

Where most people get confused is assuming the 4 percent rule is referring to the 4 percent return, like we just calculated.<\/p>\n

But, the 4 percent rule is only telling you how much money you can safely withdraw once you\u2019re retired, without dipping into your original investment principal.<\/p>\n

Here\u2019s how it works: the 4 percent rule states that you should withdraw 4 percent of your retirement portfolio in the first year, and continue withdrawing the same amount, adjusted for inflation, each year after that.<\/p>\n

For example, if you retire with $1 million, then in your first year of retirement, you should withdraw $40,000 ($1mm x 0.04 = $40,000). The following year you withdraw the same amount, adjusted for inflation. If we assume 3 percent inflation, you withdraw $41,200 ($40,000 x 0.03 = $41,200).<\/p>\n

Depending on how the stock market performed that year, your $41,200 might be worth more than 4 percent of your remaining portfolio or less. The good news is this rule of thumb has been tested over decades. William Bengen, who pioneered the 4 percent rule, tested 30-year spending rates against the historical returns of US stock and Treasury bonds.<\/p>\n

Some years the markets went up and some years they went down, but the 4 percent rule takes this into account. As long as you withdraw a steady amount, plus inflation, you shouldn\u2019t run out of money.<\/p>\n

Bengen says this rule would have protected your annual income even during 30-year periods that included the Great Depression of the 1930s and Great Stagflation of the 1970s.<\/p>\n

What Exactly is the Difference? <\/strong><\/h3>\n

The \u2018Multiply by 25\u2019 rule estimates how much money you need to save<\/strong> to retire. The 4 percent rule estimates how much you can safely withdraw<\/strong> from that portfolio.<\/p>\n

\u201c<\/strong>I\u2019ve heard the 4 percent rule is risky<\/em>\u201d <\/strong><\/p>\n

Some financial experts will tell you the 4 percent rule is too aggressive. And that you should be withdrawing 3 percent. They also believe that the \u2018Multiply by 25\u2019 rule should really be \u2018Multiply by 33\u2019.<\/p>\n

There are three caveats to the 4 percent rule:<\/p>\n

    \n
  1. It\u2019s not guaranteed. Yes, it\u2019s been tested multiple times and it works almost<\/em> every time. But, a bad market in the first few years of retirement could<\/em> make for trouble.<\/li>\n<\/ol>\n
      \n
    1. Asset allocation matters. William Bergen says your allocation to stocks should be no less than 50 percent and closer to 75 percent.<\/li>\n<\/ol>\n
        \n
      1. Don\u2019t forget investment fees. If you invest with an advisor and you\u2019re paying even one percent a year in fees, this can<\/strong> affect the 4 percent rule.<\/li>\n<\/ol>\n

        If you\u2019re really<\/strong> worried about running out of money in retirement, then following the 3 percent rule and \u2018Multiply by 33\u2019 rule will give you a more conservative estimate. But, which one you choose to follow also depends on your unique situation, risk tolerance, and taxes \u2014 all of which I\u2019ll save for another day.<\/p>\n

        <\/p>\n

        To a richer life,<\/p>\n

        \"Nilus<\/p>\n

        Nilus Mattive<\/p>\n

        The post Make Your Money Last Forever With 2 Simple Rules<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

        This post Make Your Money Last Forever With 2 Simple Rules<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

        Demystifying the nuances of structuring your retirement savings is one of my personal missions in this newsletter. Here are 2 rules that you can use to make sure you have enough saved, and it will last you all through your golden years. <\/p>\n

        The post Make Your Money Last Forever With 2 Simple Rules<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":55,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[3526,366,740,3527,3217,3393,3528,923],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1147329"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1147329"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1147329\/revisions"}],"predecessor-version":[{"id":1147330,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1147329\/revisions\/1147330"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1147329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1147329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1147329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}