Many are familiar with the 4% rule when it comes to preparing for your own retirement. According to this guideline, as an investor you must liquidate 4% of your portfolio in the first year after retirement and adjust this value for the rate of inflation in each of the following years. This should allow you to retire as sustainably as possible.
The current 4% rule is based on a portfolio consisting of 60% stocks and 40% bonds. Something that many no longer pay attention to. So I changed that rule a bit for myself. And now is the time to bring them to life. In principle, there are attractive opportunities at the moment.
Live this 4% rule now!
I just turned the 4% rule into a dividend rule for myself. In other words, my goal is an average distribution yield that I can afford when I retire. I’m looking at two things: first, modest dividend growth to offset inflation. And secondly, a good safety margin so that you do not always have to depend on 100% of the payment amount in the event of a reduction.
But back to the current reference. The reason you can now rethink this rule is simply the cheaper valuations. Right now, there are even quality stocks with a dividend focus that yield more than 5%, sometimes 6%. Even after taxes, we as investors receive a net dividend yield of more than 4%. In other words, a value that can meet these requirements. Investing in amplitude and paying attention to this rule is now possible.
My 4% dividend rule also needs some growth. However, the two DAX insurers alone, with their gross dividend yield of over 5% and 12% dividend growth recently compared to before, show that this is also possible. We can incorporate some protection against inflation. And this despite the fact that the rate of inflation is currently skyrocketing as well.
Now is the time to get greedy here!
Anyone who wants to retire, achieve financial freedom, or close a pension gap with dividend stocks should be greedy now. A 4% rule focused on strong dividends can help you fill in those gaps. Now is the time to pick up a bunch of cheap quality. But there is the possibility of being able to get these shares even cheaper. Therefore, I would proceed a little more moderately and spread out in terms of time to perhaps get even bigger discounts.
But still: There is now an attractive opportunity to earn a 4% net dividend yield on many stocks. With strong growth, there is also an opportunity to offset inflation. This is my guideline for saving for retirement.
The article Now is the time to live that 4% rule with a difference! first appeared in The Motley Fool Germany.
Motley Fool Germany 2022