Most of the Slack fund is in Australian Investments and in 2021, the Australian Index has a 12-month forward dividend yield of 3.5%. When the market performs poorly, it is more complicated and I have to dip into my stable income pile. In a good year for the stock markets, I am happy to dig deep into the investments pile – using dividends, distributions and even some capital gains as income. Slack Investor is a bit old fashioned in liking to hold on to most of the capital that is earning the money and has a flexible approach to how much to extract from investments each year. He is the first to admit that the 4% number was always treated too simplistically and has since updated the rate to be closer to 4.5%. He developed it by backtesting a conservative US portfolio with data dating back to 1920 and tried to get a safe withdrawal rate that would generate an income for at least 30 years.
If necessary, this investment income can always be supplemented by a government pension or a part-time job.īill Bengen originally came up with this “4% safe withdrawal rate” in 1994.
To get an idea about what your expenses are it is important that you track them over a year using a spreadsheet or finance software. For example, as an estimate, if you would like to generate a $40 000 yearly income, you would need to have investments assets of $1 000 000 to earn this income using the 4% rule (4% of $1 000 000 = $40 000).Īnother way of looking at this 4% rule is that you need to save 25 x your annual spending for your retirement fund so it can generate an income to cover your spending. The 4% rule is a way to “roughly” link assets with income. The 4% RuleĪll followers of finance blogs would have heard of this often quoted “rule” Slack Investor acknowledges that this magic number is arguable and depends on individual circumstances but, it is an excellent way to estimate how much you will need to retire. Both are percentages and the first one is the 4% “rule of thumb” and the second is your savings rate. However, there are two extremely important numbers when it comes to financial independence. There are many numbers to note in finance world – Fees, Investment returns, etc.
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