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Glossary

Net worth

Withdrawal rate

Also known as: 4% rule.

Withdrawal rate is the percentage of net worth withdrawn in the first year of retirement, later adjusted for inflation; the classic reference is 4%.

It comes from studies of the US market over 30-year horizons; for globally diversified portfolios and early retirement, many planners outside the US use 3% to 3.5%.

The biggest risk is sequence of returns: a sharp drop in the first years of retirement damages the capital far more than the same drop late in retirement.

Put it into practice

Related terms

  • Financial independence — Financial independence is the point at which income from your invested net worth covers your expenses, so working stops being mandatory.
  • Net worth — Net worth is the difference between everything you own (assets) and everything you owe (liabilities), valued at the same point in time.
  • Inflation — Inflation is a broad, sustained rise in prices that reduces the purchasing power of money over time.

Bring it to your own numbers

netclariq applies these concepts to your real accounts, debts and investments, with simplified double-entry bookkeeping and without asking for your bank credentials.

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Educational content. netclariq does not provide financial, investment, tax or legal advice.