“Can the 4% Rule Help Ensure a Secure Retirement?”

Mr. Xavier Chan, the Founder and Managing Partner of CWK Global, and Mr. Ray Lee, Vice-Chairman of Hong Kong Accounting Professionals Association, monthly share their views towards financial planning on “Privilege Vita”

How can retirees make the most of their savings to enjoy a comfortable retirement? The “4% rule” of financial management suggests that by creating an appropriate investment portfolio, retirees can withdraw 4% of their account’s funds each year for living expenses throughout retirement.

The 4% rule originated in the 1970s when someone calculated the long-term return on investment in bonds in retirement accounts. The question then was whether withdrawing a fixed percentage of the savings each year would lead to depletion. The conclusion was that by withdrawing 4% annually, based on historical data, the amount would last up to 50 years.

The key condition of the 4% rule is that the long-term average investment return should exceed the withdrawal rate. You may ask, how can we design an investment portfolio that meets this condition? We will be looking into this topic next time, so stay tuned.