4% Rule Calculates Independence

A method for calculating how much money you need to be financially independent, based on sustainable investment returns and withdrawal rates.

Core Concept

• What matters is not the highest returns, but the returns you can sustain for the longest period
• 6-6.5% real returns (after inflation) is the historical average for US stock market
• If you can earn average returns for 50 years, you'll end up in the top 1% of investors with zero effort

The 4% Rule Calculation

• Take your annual expenses
• Multiply by 25 to get your "number" for financial independence
• This allows you to withdraw 4% annually while maintaining principal
• Based on historical market performance and inflation rates
• Assumes investment in broad market index funds

Key Benefits

• Provides sustainable income without depleting principal
• Works with zero active management effort
• Can potentially create "dynastic wealth" over multiple generations
• Allows for steady, predictable withdrawals regardless of market conditions

Important Considerations

• Past performance doesn't guarantee future returns
• Need to account for inflation in calculations
• Must be able to stick with strategy long-term
• Requires emotional discipline to stay invested during downturns
• Focus should be on sustainability rather than maximizing returns

Morgan's Personal Approach

• Aims for average returns through index funds
• Prioritizes being "financially unbreakable" over maximizing returns
• Believes sustainability and longevity are more important than short-term gains
• Focuses on what returns can be maintained for the longest period rather than highest possible returns