human being A person needs money most in old age because at that time his earnings have stopped and there are many types of expenses. This includes claims, doctors, food, accommodation etc. Many people plan while earning but forget to plan for old age or retirement. Well, people have a lot of problems or shortage of money. Now if you learn the 4% rule in time, you can easily leave this problem behind. So let us know what is this rule and how does it work?
Learn how the 4% rule works
Calculate your expenses: While in job, calculate how much money you will need to maintain your lifestyle after retirement. This will require some hard work, but with a little research you can easily make this assessment. You can estimate the annual expenses after retirement based on the current expenses, annual inflation burden and retirement age.
Multiply by 25: Once you have an estimate of your annual retirement expenses, multiply this amount by 25. The logic behind this move is that 4% of your savings can be withdrawn every year, and 1 can be divided by 0.04 (1/0.04 = 25.)
Early Withdrawal: In the first year of retirement, withdraw 4% of your total retirement savings. For example, your retirement fund is worth Rs 1 crore. Now the initial withdrawal will be Rs 4,00,000 (4% of Rs 1 crore).
Effect of inflation: Every subsequent year, adjust your withdrawals according to the impact of inflation. Historical data shows that India has an annual inflation rate of about 6%. So, if you withdrew Rs 4,00,000 in the first year and inflation was 6%, you would withdraw Rs 4,24,000 in the second year. The 4% rule is a simple formula for providing steady income.
This is not set in stone. You can use this to set your fixed withdrawals.
Periodic Review: Review your financial position from time to time and rebalance your withdrawals if necessary. If your portfolio has experienced significant gains or losses, you may need to correct your withdrawals to maintain a sustainable income flow. This way you will never face shortage of money in old age.
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