4% Retirement Rule for Malaysians- Does it Work?

Have you heard of the 4% retirement rule?

Not sure who actually created it, but I first stumbled across this through mrmoneymoustache.com. 

The theory is simple: Accumulate enough capital such that you can live on its 4% yearly return, and you immediately retire.

Example, say your monthly expenses amount to $5,000. This means you will need $60,000 for yearly expenses. Divided by 4%, you need $1.5M in capital.

I find this theory interesting  and worth considering for few reasons, especially in Malaysia, my home country:

  1. It basically means, once you hit that capital target , you can live off its yearly 4% returns. Meaning the principal or capital remains untouched. Current fixed deposits rates in Malaysia are around 4%.
  2. Naysayers may say-what about inflation and increasing costs of living? Well, this theory assumes that you go on total retirement mode once you achieved the targeted amount. In reality, most people will probably work on their real passions during retirement and perhaps generate income from there.  Opportunities are endless when you have the option to work or not. My take- you only work because you want to, not because you have to, and that usually leads to financial returns.
  3. Simple target to focus on. Combine this theory with another one- if you are able to save 70% of your monthly income today, you will be able to save enough to retire in 11 years. Do the maths.

Assuming monthly income is $8,000=70% equals $5,600 saved every month. $2,400 for monthly expenses.

After 11 years= $5,600 × 12months× 11 years= $739,200 saved.

4% of that=$29,568=$2,364/month in passive income.

Another way of looking at the 4% rule is to target accumulating 25 times your annual expenses and you are pretty much set.

Here’s the question: What’s your targeted amount following the 4% rule?

And here’s how you can accelerate your progress to hitting the 4% capital amount:

  1. Aim to fast track your career. The more you earn, the more you can save. The more bonuses you can achieve. Put in the same effort into ensuring your career progression is on track as your investments.
  2. Get rid of the doodads in the your life or “money suckers”. Track your expenses daily and look at your spending habits. Cut out the unnecessary expenses. Things like snacks, coffee lattes, unused gym memberships, etc.
  3. For every promotion, aim to stick to the same regular lifestyle. The problem is most people’s expenses increases in line with their income. I still drive my 8 year-old car till now. A friend of mine who is a VP in his company recently changed his 400k mileage used Volvo to the cheapest local manual car in the market. His reason? It takes me from point A to B.

For me, I need around $3M to hit the 4% retirement rule. That will equal to around $10,000 per month in passive income. Enough for a comfortable living for me and my family as a start. As of now, most of my networth are locked into properties assets. I’m working to increase my earned income as much as I can, save as much as I can and invest as much as I can.

Do you think the 4% rule works? Let me know 🙂

Financial Zen for everyone- Why I started this blog

Well, here goes..

Another website that I’ve started with optimism 🙂

Only this time, my intention is simple- help inspire at least one person to change their financial life and in the long term , leave a good legacy (God willing).

So who am I to dream this ” wild dream”?

I’m a Malaysian (an aspiring-to-be-a-first-world country in Asia) in his twenties , married to a lovely wife, whose life changed completely at 19 when I stumbled across the immortal book- Rich Dad Poor Dad by Robert Kiyosaki. 

What a book. If you have never read it, it’s my great honour to introduce you to it. READ IT NOW!

The next 5 years after 19, I spent time building a network marketing business , an affiliate marketing business and several other ventures. All failed to take off.

That’s when I came across property investment.

Fast forward, property investment and personal finance concepts has enabled me to build a networth of slightly over RM500,000 by age 27.

I’m sick of the negativity among people today about the economy.

It’s time to make a change- by sharing real stories about the average joes achieving financial abundance.

In the US, there have been many recent personal finance bloggers sharing their stories to financial abundance-

  1. financialsamurai.com
  2. mrmoneymoustache.com
  3. retireby40.org
  4. mrtakoescapes.com

Let’s start a revolution here in Malaysia, my homeland as well as Asia!