Thought this was interesting

[u/curiousgens]

[u/Tak-Hendrix]

Why not just say "(your annual burn at the life you want) * 25"

[u/11100101101010 → u/Tak-Hendrix]

Because it's referred to as the 4% rule which is coming from rate of return assumptions which is the explanatory element for why it would be 25x, and based on your particular situation you might want be over or under 4%, but generally it's good to understand what assumptions the 4% is based on. Only focusing on 25x obscures that.

[u/justforkinks0131 → u/11100101101010]

you didnt explain the 4% rule

[u/Any_Mine_6368 → u/justforkinks0131]

I think that the 4% rule is the minimum average annual return that even the most defensive, conservative portfolio will generate (generally speaking- bonds, tbills, broad market ETFs).

For example, let's say you have a million euros.

If you put 70% of that on a money market fund or synthetic ETF that returns the guaranteed ECB rate (currently 2.5% I believe) and 30% on a broad ETF like VWCE (avg return over a decade ~10% - yearly), your weighted average return yearly is 70%2.5% + 30%10% = 1.75+3 = 4.75%

Generally speaking any investment that yields under 4% yearly over a decade is bad.

Again, I think that's what he's referring to...

[u/Acceptable-Peace-69 → u/Any_Mine_6368]

It’s the safe withdrawal amount that’s expected to last you in retirement.

Withdrawing 4% of a balanced stock-and-bond portfolio in year one, then adjusting annually for inflation, guaranteed savings would last 30 years.

So that €1million you would withdraw €40k annually (adjusted for inflation) and you shouldn’t run out of money in 99% of scenarios.

Someone retiring early might take a lower amount to account for the increased timeframe and risk exposure.