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Retirement and the 4% rule

The often-quoted model of how retirement works is that you need to save up a huge chunk of money which you invest in stocks and bonds, and upon quitting work, you can withdraw up to 4% of it per year and in theory, it should last you until you die. I don’t hate this model, but it seems to me that it’s kind of outdated for the following reasons:

1. People are living a lot longer. Retiring at 65 and then living off your savings for another 10 years or so is no longer the case.

2. People are healthy and able to work longer. Working until 70 or even older is becoming pretty normal these days, at least in North America.

3. Assuming you withdraw 4%/ year, you’ll want your portfolio to gain that or more, on average per year so your capital doesn’t decrease too much. But, interest rates on bonds are so low, that it can be quite hard to find that kind of yield without taking on a lot of risk.

Here’s a model that I think is going to work for me better than this one:

I don’t plan on “retiring” at any certain age. I currently work part-time and make more than enough to live on and save for the future. It’s something I can see doing for the foreseeable future, until the traditional retirement age or beyond. Contract work is also a good option-working hard for a year or two and then taking some time off to relax or travel or do whatever I want to do. I have a lot of skills which will enable me to make a basic living in almost any country in the world. I also make money through dividend paying stocks and I want to continue to build my passive income streams so that even if I’m not working, I’ll still have money coming in. Eventually, I hope that it will be enough to live off of entirely.

I guess it’s mostly that “Work” and “Retirement” are not exactly separated that strongly in my head, as the previous model forces them to be. I hope to have money coming in through passive income and investments for every month of the rest of my life. And I hope to continue to work, doing things that I enjoy on a part-time basis for the rest of my life. Work is a good thing and can actually be quite enjoyable, especially when not doing it 40+ hours/week. It helps to when it’s done by choice and not because I have pressing bills that need to be payed.

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