• Question
  • 25 Times Annual Income In Investments - Or Equivalent

    Asked by a 57 year old man from Bothell, WA on 3/10/2019

    I'm familiar with the 4% rule. My question is if I have a combination of Social Security, pension and retirement assets that generate monthly income equal to this amount is that adequate? Or do I need 25 times our annual income in investments not including SS and pensions?

  • Categories: Retirement Planning, How Much Do I Need?


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  • The 4% Rule assumes that you can draw 4% (on an inflation adjusted basis) from a balanced portfolio comprised of equities and fixed income. Your pension and/or social security income means that you will need to rely less upon your portfolio for income.

    Remember that rules of thumb are helpful guidelines but not absolute. There are several caveats to the 4% Rule to keep in mind. The first is that the rule was created many years ago and based on historical stock and bonds returns for the 50 year period from 1926 to 1976. It assumes historical returns on equities of 10% and blended returns of 7%, rates of return that most market forecasters do not believe are repeatable in the near to medium terms given the outsized returns the markets have generated over the past ten years. Second, another consideration is that during the period from 1926 to 1976 dividends comprised a larger proportion of equity returns and interest rates were higher, the point being that investors could count on steadier income from their portfolios. This leads us to another point, you should have an emergency fund equal to at least six months of expenses and you should have a portion of your portfolio in cash and cash equivalents so that your are not forced to sell assets in a down market. The third is life expectancy and age at retirement. The longer you expect to live in retirement the lower the percentage you should expect to be able to draw from your portfolio.

    As you can see there are many variables to consider in applying the 4% Rule or any other rules of thumb when it comes to retirement. Ideally, you should speak with a CFP® who can better asses your personal situation. Please do not hesitate to let me know if you would like to discuss your situation.

  • Login to rate this answer:   Answered on 3/14/2019
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  • The missing piece of info is your annual budget and/or total assets. That would help us determine the longevity of your assets. We have CFPs on board and are a planning centric firm. pete@missionwealth.com.

  • Login to rate this answer:   Answered on 4/1/2019
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.