Do you dare to follow the 4% rule?

If you’re reading this article, you probably already know at least a little bit about the 4% rule (sometimes also known as the Rule of 25). Its a very simple way of defining How much money do you need to retire

Revision 101: What is the 4% rule?

Put simply ‘The 4 Percent Rule is a statistical rule based on many studies that say that the average retiree can safely withdraw up to 4 percent of their initial savings every year (with inflation adjustments) for at least the next 30 years’.

Or looking at it in other sense, What Is A Safe Withdrawal Rate (SWR) For Retirement?, (early or otherwise).

The objective of the 4% rule is to save 25 times your annual expenses and this should be enough for you to live on in full financial independence. There are many articles on the subject, and even online calculators to help you get your head around this and do some basic estimations.

Should you trust the 4% rule blindly?

The world is an ever-changing place, and what worked yesterday may not always be fine for today. Tanja Hester from OurNextLife, who retired at 38, wrote recently The 4% rule is not your friend. Tanja’s point is that with the financial environment being what it is, that 4% may be no longer the right number. It could be 3.5% or even 3%. On the other hand, if you have set up some side hustles with passive income coming in each month, then your number could be 5 or even 6%.

I don’t want to focus on the technical aspects of the 4% rule (you can find that elsewhere if you want to dig deeper) Neither do I want to argue whether or not the 4% rule works or not. I want to put more focus on the mental and psychological aspects of putting the rule in place.

Preparing the ‘Big Move’

I’ve always been a bit of a maniac about tracking my money and savings etc. At certain moments throughout my career, there have been periods where I’ve been able to take advantage and save more, in preparation for “That Day” when Id finally have enough to give up my 9-5 job. Even though I knew I was on the right track, I was always afraid, that what I had would never be enough. Even if I was working on complying with 4% rule, I wasn’t confident enough to take the leap.

I’m sure that I’m not alone in this case. If you are anticipating moving towards financial independence for me the really important point is when will you feel ready to actually make the big move. What can help you to overcome your fear and allow you to work up the courage and to finally hand in your notice, and make the first real step towards your new lifestyle?

Simulation is the key

Why is there this little voice in that back of your mind saying, “Yeah, but what if……..? It’s quite simple really. The 4% rule is based on withdrawing relatively stable expenses during the retirement period.

Real-life is not like that.
We all have projects……most of us dream of traveling, etc.

What was really important in helping me to move towards moving away from my previous 9-5 job was to be able to simulate financially my projects.

  • What if I quit my job and then my wife follows 1, 2, 3 years later?
  • What if we want to buy a campervan and tour around for 9 months?
  • What if one of us wants to retrain and learn new skills and start a new activity?

It was only after a number of months of juggling with all the options, to fully understand our situation and to convince myself (to be able to trust myself, ultimately), that whatever could happen and whatever we plan to do in our future, that we will be able to find solutions to manage.

The true value of simulation

Running your your lifestyle change plans through a simulator and testing all your scenarios is the pragmatic, physical steps you will take, but the true value of doing this is fact that mentally you accept and project little by little towards your new lifestyle, until……one day……you’ve moved on mentally and can no longer look back. I remember this process very well, even if it was not so clear what was happening at the time. It was with retrospection that I’m is now able to look back and say that the real value of me spending all that time simulating and reflecting was that ultimately I was convincing myself, and building up the courage to be able to go and see my boss and hand over my resignation letter.

It was almost exactly one year ago as I write this article. It’s now been 9 months since I left my 9-5 job to embark on my lifestyle and to set up EFILYM. Along the way, I’ve built a strong desire to be able to help others follow the experience and ultimately find the courage to be able to move towards the life they dream of, and not the one enforced upon them.

What are the points blocking you and preventing you to take the step towards your new lifestyle? I’d love to have your feedback on this topic. Feel free to share below!

Credit Photo: Photo by Leio McLaren on Unsplash

Do you dare to follow the 4% rule?

2 thoughts on “Do you dare to follow the 4% rule?

  1. Thanks for your details on the 4% rule. I was not aware of it, and now have done some additional research to understand it better. It all seems too simple.

    I don’t know too many people that would accept to take the plunge based on just achieving a certain amount of net worth. Running simulations certainly seems like a good idea. I’m not very advanced in terms of planning my lifestyle change, but it seems like a good way to start to me.

    Thanks for the article.

    1. Hi Harold and thanks for your comment!
      For sure, it’s a daring move to give up a steady income without really testing your situation and seeing what could happen in a multitude of cases (inflation fluctuation, undertaking personal projects, a health scare, etc, etc) Having the money put aside, invested, etc is comforting but its only part of the story. Mental preparation is probably even more important.
      Good luck with your project and if you need any support, don’t hesitate to come back to me.

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