- Retirement “rules of thumb” can mislead young, high net worth clients about their ability to retire early.
- Important adjustments to retirement assumptions question the 4% retirement withdrawal rate rule for most retirees.
- Capital Group’s three-factor retirement analysis helps advisors give their young, high net worth clients more realistic and precise goals.
“Can I retire now?” used to be something you’d expect a 55-year-old to ask. But now, young, high net worth clients — in their 40s or even younger — might pose the question to you. Simply saying “no” isn’t an acceptable answer.
Here’s the challenge: Assumptions used in traditional retirement plans don’t apply to “extreme early retirement” — where clients may want to retire in their early 40s or even sooner — Capital Group research suggests. Your 40-year-old clients may think they can retire now if they invest 25 times their annual spending, which correlates to the commonly cited “4% withdrawal” rule. Our research, though, suggests the needed number is closer to 36 times annual spending. The difference is profound1.
The ramifications of our research reach far beyond 40-year-olds looking to hang it up early. Most people are likely to need considerably more than they thought for a secure retirement. The analysis also calls into question assumptions used in retirement planning, including the oft-quoted “4% withdrawal rule.”