Chris Reining: How to calculate how much to save to retire early - Business Insider: The 4% rule means you can safely withdraw 4% from your investment accounts each year, adjust your withdrawal for inflation, and never run out of money.
Here's an example.
You have $500,000 in an investment account. You can withdraw $20,000 the first year ($500,000 x 0.04). Then you forget about the 4% rule and increase your withdrawal each year by the prior years inflation rate. Let's say inflation is 3% so in the second year you withdraw $20,600 ($20,000 x 1.03). And so on.
Here's an example.
You have $500,000 in an investment account. You can withdraw $20,000 the first year ($500,000 x 0.04). Then you forget about the 4% rule and increase your withdrawal each year by the prior years inflation rate. Let's say inflation is 3% so in the second year you withdraw $20,600 ($20,000 x 1.03). And so on.