Improved 4% Rule

During the course of FIRE journey, this phrase has been appearing in my mind. I am wondering how much is enough for me to call it a day on the full-time employment. As the years passed, the figure gets higher and I have to continue working on achieving the new Financial Independence figure.

I use the 4% rule. This entails the yearly expense multiplied by 25 years. I derive the so-called FI figure. 4% rule tends to produce the wild, scary numbers. One will take the annual income and multiply it by 25. This will be an absurd FI amount. I believe that there will be a few who would forget about achieving FI after such calculation. There are also incurred expenses which are attributed to the full-time employment.

Examples of such expenses are fancy clothes, fast food lunches, the transportation expenses etc. All of these expenses will be eliminated the minute one leaves the full-time employment.

The way of the improved 4% rule is as follows:

  • Take one’s basic living expenses, after one attains freedom. Be as aggressive in making this number as low as possible, counting only basic living costs;
  • Then subtract any income one can expect from doing work that truly interest one.
  • Then multiply that by 25.

I use myself as an example. I spend about $1,400 per month. I have yet to establish the work which interests me. Multiply the monthly expense by 12 and 25. This will give me the FI figure as about $420,000. This figure gives me the assurance that there is no need to worry of me ending up with the  investment portfolio being depleted completely. The investment portfolio currently generates the dividend at the rate of more than 4% annually. This gives me the peace of mind and I can sleep soundly at night. On hindsight, I could have left my full-time employment much earlier if I had known such derivation earlier. This means that I ended up accumulating way more than I need to do so. In totality, it does not harm having the additional stash of the investment portfolio which will be working hard to generate the dividend on a yearly basis. I can reinvest the balance dividend proceed back to the investment portfolio which will continue to generate more dividend on a continuous basis.

I am currently in the process of exploring the part-time employment on my own term and condition. Private-Hire services and tuition are on my mind. I expect to generate about $1,000 to $2,000 per month from these part-time employment. The derived income may be sufficient to cover my current expense, leaving me the full generated dividend to be reinvested back into the investment portfolio. Let’s see how my plan frames up in the course of the coming months.


Author: firewtk

A middle-age Singaporean currently having a minimalist and simple lifestyle. I am not longer in full-time employment with effect from 1 May 2019. I try my very best to write one post per day on this blog. The purpose is to share my prevailing thoughts to interested readers. It is up to the interested readers to decide whether they want to take action in embarking on the FIRE journey. I do not gain anything from this blog and it is solely for sharing hopefully for the benefits of all interested reader. WTK

2 thoughts on “Improved 4% Rule”

    1. I believe that more expense will be incurred with full-time employment. When one exits the full-time employment, the incurred expense will be reduced. It will be prudent to maintain the same expense (mirror of the expenses in the full time employment) for the lifestyle after the full-time employment. My two cents worth of view.



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