Saturday, March 16, 2019

Forget The 4% Withdrawal Rule, Go For 4% Income

It seems like every retirement article out there reads like this one: "You need at least $1 million! No, wait! Now you need $2 MILLION!!!!1"

Next week it'll be $4 million.

Since the bulk of articles on this topic parrot this thinking, that the only way to live on your accumulated assets in retirement is to draw down 4% of them each year, it's really no wonder that there's a constant "nest egg arms race" in this way of thinking.

That probably also explains a lot of the pessimism out there surrounding this topic, and why people long for the "good old days" of defined benefit pensions.

Try this instead:

Total up your current retirement and non-retirement assets.

Multiply that by .04.

Now multiply that number by 1.10 and hit "equals" as many times as you have years between now and retirement.

What's this? It's the current income you could generate on several solid dividend paying stocks that are out there, and the subsequent 10% multiplier shows you how that income would grow (on average) with dividend hikes in the future, assuming you didn't add anything more to your principal.

That's income generated by your assets, cash flow. That's what you can spend without drawing down what you've accumulated, and it grows over time.

Don't get freaked out by these bullshit retirement articles, they're all stuck in a broken paradigm (and in many cases, probably purposefully so, for political agitprop). Shift your focus from net worth to cash flow, it changes the whole game.

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