Forget The 4% Rule: This Is The Retirement Number That Actually Matters

A reader left a comment on my last in-depth retirement article, the one where I built an income floor for a reader I called Bob. That article was a huge success, and I want to thank everyone for their feedback. I am glad that this format is so well-received, which is why I will expand on it and focus even more on retirement investing.

And, as always, with a focus on the Big Picture.

Anyway, his question has been rattling around my head ever since. He pointed out that income investing and retirement math are not the same thing, and he wondered how a low withdrawal rate changes the case for bonds, preferreds, and the rest of it.

It is a fantastic question. And the more I sat with it, the more I realized it deserves its own article, because the answer applies to a lot more people than just retirees.

So let me start with a problem.

For many years, investors have basically quoted the 4% rule as if it were set in stone. You retire, you pull 4% of your portfolio in year one, you adjust that figure for inflation each year after, and history says you almost certainly will not run out of money over a 30-year retirement. On paper, it's that simple.

There is just one problem. I am not American. And neither are many others.

The 4% rule was built on one country's stock market history. And not just any country. It was built on what might be the single best long-run equity market the world has ever produced.

When you take that rule and quietly apply it to the rest of the planet, or even to a more honest reading of the future (meaning: future returns aren't guaranteed!), the thesis starts to weaken.

This article is about that risk. But it is not a doom piece. It is the opposite. Because once you understand what the withdrawal rate actually is, you get a tool that works whether you are 25 or 65, whether you live in Ohio or, like me, somewhere between the EU and Albania.

Hence, after spending the past few days working through countless theories and scenarios, let me show you what I found - and how this can help all of us, retired or not!