Do you want to be stuck in some office, cubicle, or a j.o.b. doing the same thing for the rest of your life? If that answer is no, then you might want to know about the four percent rule. Why? Because it is the rule you’ll most likely need to adhere to if you want to retire early and stay retired.

First things first, if you want to retire early (or at all), you should have a plan in place to save and invest as much of your discretionary money as possible. The more you stash away, the longer your money will last in retirement, and the more money you’ll have to spend to live your life to the fullest.


Okay, So what is the 4% rule? Well, in it’s simplest terms, it’s a retirement planning strategy that is suggested by many financial advisors. It’s a tactic suggested to those who want their money to last throughout the duration of their retirement years.

It’s also a planning rule of thumb that gives you the best shot at retiring without diminishing your retirement funds. In short, it’s a conservative withdrawal rate to aim for when you retire.

Here’s how it works. Let’s say you’ve stashed away your hard earned money over that past 20+ years and you’ve accumulated upwards of nearly $1,000,0000. And now that you’ve hit this goal, you decide that now is the time to retire. So you do.

You pull the trigger and choose to do so following the 4 percent rule. You choose to spread your $1,000,000 in capital across a handful of solid investments vehicles, and you strive to use only 4% of that investment each year to pay for your living expenses. The rest of the money (your principal) you don’t touch till next year.

Here is a more or less “official definition” of the four percent rule:

the four percent rule definition

Therefore, depending on what you invest your money in, your principal can gradually grow while still paying out around 4% per year in dividends, or it can stay the same while pulling 4% annual payouts, or it can dwindle if you spend 4% of the principle every year.

Certainly there are risks to this rule, but it all depends what you invest your money in to make it work for you. As such, you’ll want to do your own due diligence on investments or seek out a qualified financial professional to help you best leverage your investments.

That said, here’s what the 4% rule would look like for your $1,000,000 early retirement plan.

4% Rule Money Metric Amount
Invested Nest Egg $1,000,000
Earnings Per Year: $40,0000
Per Month: $3,333
Per Week: $769
Per Day: $109.89
Per Hour: $4.57
Per Min: $.07
Per Sec: $.001

Note: The breakdown above calculation shows a payout for all days (meaning it includes weekends) and all hours (24 hours, meaning money while you sleep). So payout would look different if calculated using working days and working hours. Here’s how it would look if calculated for working days and working hours: $153.86 per day, and $19.23 per hour.

Related: Get Rich With a Normie 9-5


For some people, $40K per year is plenty to retire off of, especially if you plan to move to an affordable state in the U.S. and live a lowkey lifestyle. $40K could also work if you plan to move overseas to a place that is extremely affordable like Bulgaria, Croatia, Portugal, Nicaragua, or even Mexico.

But, if living off of approximately $40K per year sounds unappealing to you, well, then you’ll want to change your retirement goal or FIRE (Financial Independence Retire Early) number.

definition of fire number

Dave Ramsey said it best with his quote, “When your money makes more than you do, you are officially wealthy.” So, keep his quote in mind with regards to your FIRE number and you’ll be well on your way.

With this in mind, below is a chart of what your earnings would look like if you decided to up the ante to a different FIRE number with the intention of using the 4% rule:

FIRE No. Using 4% Rule Annual Payout Monthly Payout
$1,000,0000 $40,000 $3,333
$2,000,0000 $80,000 $6,667
$3,000,0000 $120,000 $10,000
$4,000,0000 $160,000 $13,333
$5,000,0000 $200,000 $16,667
$6,000,0000 $240,000 $20,000
$7,000,0000 $280,000 $23,333
$10,000,000 $400,0000 $33,333

You can always play with the numbers to see how long it will take you to achieve your goal. One great resource to chart out your path to a FIRE number that inspires you is a compound interest calculator. If you don’t have one, this is by far our favorite investment calculator.

Now that you’ve considered the FIRE numbers above, or ran your own “hypotheticals” through the recommended investment calculator, you should now have a better idea as to what to aim for, so you can make the day you turn in your two-week notice and ride off into the sunset and retire early a reality.

Nevertheless, if you’ve made up your mind and you have goal or number that you’re ready to strive for, pull out your pen and paper and make it a goal. The four percent rule will only work after you have. You have to put in the time and energy before you can get it back.

Final Thoughts

You now know what the 4 percent rule is and how you can use it to plan out your early retirement. Before you start stacking your money though, it’s important to know that there are various pros and cons to this approach.

So, if you want to dig even deeper, and look at a few other important considerations before you dive into the four percent rule, consider reading this insightful Charles Schwab article on the rule and how much you can spend in retirement.

Till you reach your aims,


Disclaimer: We are not financial advisors. The content on this website is for educational purposes only and merely cite our own personal opinions. Read full disclaimer here.



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