Hello listeners! Today we have an amazing discussion with B. from Fire The Boss on the 4 percent rule, its pros and cons and the alternatives to it for European investors. Sit back, relax and enjoy!
We also talk about:
- Different withdrawal strategies
- Investing strategies and European tax regimes
- How the market influences withdrawal strategies
- Airbnb and tax regulations
- Mixing active, semi-active and passive income streams
- p2p lending
Is the 4 percent rule still valid for Europeans?
The 4 percent rule or Safe Withdrawal Rate determines how much of your retirement account you can actually withdraw each year: this number is based on the analysis of historical data, but these are mainly based on the American situation, with investments in S&P stock assets. B. reflects on the issues that this causes when trying to apply this rule to a European context, with different portfolio setups and tax regulations, and to a different time frame (the original rule is aimed at 30 years of retirement).
Geoarbitrage and the Safe Withdrawal Rate
To balance the many factors that can negatively impact on a 4 percent-based retirement strategy, Europeans also can find a great resource in geoarbitrage: earning and saving in a high-income country like Switzerland and then retiring in a country with a lower cost of life like Portugal or Italy – which actually lowers the percentage you withdraw from your account each year and make sure you don’t run out of money in the long term.
Alternative strategies to complement the Safe Withdrawal Rate
B. finds that relying solely on a Safe Withdrawal rate from a stock-based portfolio for early retirement is a risk in the end. A more effective strategy would include other revenue streams, so diversification is key: Airbnb, side gigs, consulting, every resource that lets you avoid relying 100 percent on your withdrawal rate will greatly increase the chances to actually have an early retirement, especially at a young age.
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Also check out the article B wrote on the 4% rule article