1. A young investor should build a retirement corpus target of 25 times (25x) of his estimated annual retirement expenses through Systematic Investment Plan (SIP) of equity mutual funds (preferably a Balanced Equity fund) during his earning years.
2. Thereafter, he can apply the 4% withdrawal rule comfortably during his entire retirement years.
3. The actual rule says you can withdraw 4% of the retirement corpus during your first year of retirement, and continue withdrawing the same amount, adjusted for inflation, each year after that forever.
4. The assumptions are 7% minimum annualized returns from the corpus and 3% maximum inflation rate on a long-term basis.
5. For an investor who is able to achieve the 25x corpus target at any age, the 4% withdrawal rule starts working fine thereafter too.
2. Thereafter, he can apply the 4% withdrawal rule comfortably during his entire retirement years.
3. The actual rule says you can withdraw 4% of the retirement corpus during your first year of retirement, and continue withdrawing the same amount, adjusted for inflation, each year after that forever.
4. The assumptions are 7% minimum annualized returns from the corpus and 3% maximum inflation rate on a long-term basis.
5. For an investor who is able to achieve the 25x corpus target at any age, the 4% withdrawal rule starts working fine thereafter too.