What is the 4% Rule? And what else must I consider, to ensure I’m retirement ready?

Insight | by Stephen Kiggins
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What is the 4% Rule?

The 4% Rule is a guideline designed to help you determine how much you can safely withdraw from your retirement savings each year without running out of money. It suggests that you can withdraw 4% of your portfolio’s value annually, adjusting for inflation, to ensure that your funds last at least 30 years.

For example, if you have a £1 million portfolio, you would withdraw £40,000 in the first year. In the second year, if inflation is 2%, you would withdraw £40,800, and so on.

This rule is based on historical market performance and assumes a well-diversified portfolio of stocks and bonds. But does it hold up in today’s economic climate, and what other factors do you need to consider to ensure a secure retirement?


Limitations of the 4% Rule

  • Market Volatility
    The rule assumes consistent market returns, but real-world markets can be unpredictable and volatility has the potential to impact a portfolio’s longevity.
  • Inflation Variability
    Inflation rates can fluctuate, and the rule’s annual adjustments may not always align with actual living cost increases.
  • Longevity Risk
    With life expectancies rising¹, a 30-year retirement may not be enough. If you retire early or live longer than expected, the 4% Rule may not suffice.
  • Lifestyle Changes
    Your spending requirements may change over time with expenses, such as unexpected healthcare costs impacting the income allowance afforded by the 4% Rule.

Beyond the 4% Rule - Cashflow Modelling is Key to Personalised Planning

To ensure you’re truly retirement ready, it’s essential to go beyond the 4% Rule and adopt a more tailored approach. This is where Cashflow Modelling comes in. Cashflow Modelling is a powerful tool that helps you to visualise and secure your financial future by mapping out your income, savings and expenses over time. It takes into account your unique circumstances, goals and assumptions - providing a clear picture of whether you’re on track to achieve your retirement objectives and whether the decumulation of your portfolio and your income in retirement will be sustainable in support of those objectives.

At Forth Capital, we use the latest Cashflow Modelling software to create personalised retirement plans for our clients. By inputting your current financial situation, your future goals, and potential risks, our expert financial planners can simulate different scenarios and help you make informed decisions.

Key Considerations

Cashflow Modelling will provide you with a detailed view of your financial future, but there are a number of factors that you need to consider when creating this plan to ensure that it is robust, and remains future-proofed.

1. Diversification of Your Investment Portfolio

A well-diversified portfolio helps you to mitigate risks and maximise returns. And adjusting the asset allocation within your portfolio for risk, as you approach retirement, is key to ensuring that it remains resilient in different market conditions.

2. Healthcare and Long-Term Care Costs

Healthcare expenses often increase with age, and potential medical costs and long term care costs need to be considered to prevent your savings being depleted by unforeseen health issues.

3. Tax Efficiency

Understanding the tax environment of the country where you decide to retire, and the material implications of that on your retirement withdrawals and income is essential.

4. Estate Planning

Ensure your wealth is preserved for your family and future generations by having a robust estate plan in place. This includes consideration of where your assets are located, and potentially creating trusts and/or a Family Investment Company to protect your assets.

5. Regular Reviews

Life is dynamic, and your retirement plan should be too. Review your financial plan on at least an annual basis ensures that changes in your circumstances and goals are reflected in your plan.


How Forth Capital Can Help

At Forth Capital, for over 20 years, we have been 'making the complex simple' for our clients in more than 50 countries worldwide, helping them to secure their financial freedom and ensure that they are retirement ready.

Our team of dual qualified international financial planners uses the latest Cashflow Modelling software to create bespoke retirement strategies tailored to our clients' specific needs - wherever in the world they live, and wherever they choose to retire

We’re here to guide you every step of the way, to help you create a retirement plan that’s as unique as you are.

Contact us to schedule an initial consultation and together we can make your financial freedom a reality.


¹ Research published in the Lancet* suggests that if life expectancy in developed countries continues to increase at the current rate over the course of the coming decades then the majority of people born in the UK since 2000 will live beyond their 100th birthday. With life expectancy increasing in this way, a target age of 100 has been chosen for the calculator, as we want to ensure that all our clients have planned with confidence for a future that is sustainable and affords them absolute peace of mind.

* The Lancet - Ageing populations: the challenges ahead [Prof. Kaare Christensen, MD, Prof. Gabriele Doblhammer, PhD, Roland Rau, PHD, Prof James W Vaupel, PHD] Published Oct 3 2009.

This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on international financial planning and wealth management.

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