Financial Independence, Retire Early, or FIRE as it is commonly known, is a goal set by increasing numbers of people keen to depart the workforce before the traditional age of 60 or 65. However, as retirement involves having enough cash to see one through life without a regular salary or wage, it often requires significant forward planning. One way of doing so is following the four percent rule which many view as the key to planning a successful retirement.
“It came about in the early 1990s and was based on a basic model – on a retiree having a lengthy 30 year retirement. But there are a lot of other assumptions.
“In essence, the four percent rule states if you aggregate all your retirement assets, take four percent – that is your income for year one. Then you add inflation to that every year.
“For example, if all your assets in a pension, savings and ISAs add up to £1million, four percent of that is £40,000. Inflation is two percent, then the next year you take £40,000 plus another two percent, equalling £4,800. Then increase it by inflation each year.”
Many people…
