Planning for retirement can feel overwhelming, but the 4% rule offers a simple starting point. The idea is that if 4% of your total savings can cover your annual expenses, you’re financially ready to retire. That translates to having 25 times your yearly spending saved up.
What Is the 4% Rule, and Why It Matters
Widely referenced in personal finance, the 4% rule was designed to help retirees withdraw money sustainably from their investment portfolios. For instance, if you spend ₹6 lakh annually, you’d need ₹1.5 crore to meet the rule’s benchmark. However, financial planners warn that this approach isn’t one-size-fits-all.
According to Anmol Gupta, Founder of 7Prosper – Your Personal Financial Planner, the rule is useful but not foolproof. He emphasizes tailoring it based on individual circumstances, including age and future living costs.
The Hidden Risks: Inflation and Early Retirement
One major flaw in applying the 4% rule blindly is ignoring inflation. Your expenses today won’t be the same two decades from now. For example, if you’re 30 today and plan to retire at 55, you must account for how inflation will erode the value of money over time.
Here’s a breakdown based on Gupta’s example:
| Current Monthly Expenses | ₹50,000 |
|---|---|
| Annual Expenses | ₹6,00,000 |
| Current Age | 30 |
| Retirement Age | 55 |
| Inflation Rate | 6% |
| Projected Annual Expenses at Retirement | ₹24,00,000 |
| Required Corpus (Using 4% Rule) | ₹6 crore |
By using the Rule of 72, your expenses double every 12 years with 6% inflation. That means your ₹6 lakh annual cost becomes ₹24 lakh by age 55. Multiply that by 25, and you’ll need a ₹6 crore retirement fund to maintain your lifestyle.
Modern Tools vs Traditional Rules
Meanwhile, relying solely on the 4% rule may lead to underestimating how much you truly need. In today’s tech-savvy world, using retirement calculators or working with financial advisors can offer more accurate estimates tailored to your situation.
That said, the 4% rule still holds value as a benchmark—but it’s no longer sufficient in isolation. Market trends, rising healthcare costs, and increasing life expectancies demand a more dynamic approach to retirement planning.
Whether you’re watching the Nifty, tracking a bank rally, or investing in auto stocks, your financial roadmap should be as agile as the market itself.