What is the 4% Rule?

The 4% Rule is a simple way to figure out how much money you need in your investment account to retire. The idea is that you can withdraw 4% of your total investments each year to cover your living expenses.

Example:
Let's say you have $1,500,000 saved up.

If you use the 4% rule, you could withdraw $60,000 each year to live on:

4% × $1,500,000 = $60,000

This rule works because, on average, the stock market grows by about 8-10% per year over the long-term.

By only taking out 4% of your invested net-worth each year, your money can keep growing even after accounting for inflation (usually around 2% per year) and future market crashes.

This helps ensure you don't run out of money during your retirement years.

What is the 25x Rule?

The 25x Rule helps you figure out how much money you need invested to retire with a specific yearly income. The 25x Rule works by taking into considering a 4% withdrawal rate (known as the 4% rule).

The Rule of 25 shows us that you need to invest 25 times your annual expenses to retire comfortably.

To get this number, you first multiply your monthly expenses by 12 to figure out your annual expenses.

You then multiply that annual expense by 25 to get the amount you'll need to retire.

Example:
If you want to have $60,000 per year in retirement, you would need:

$60,000 × 25 = $1,500,000

This amount should allow you to withdraw 4% each year, giving you your desired retirement income.