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>> is to spend a maximum of 4% of your assets each year.

OT. Isn't 4% also the rule of early retirement, that is if you can live of 4% of your savings you can retire?

Can anyone clarify if this rule applies for both individual and corporate? If so, how would be even more interesting to know?






4% works out for retirement, with the expectation that you will eventually die and no longer need the income. The assumption there is that if the market underperforms for the next 35 years in a row, you run out of money just after you die.

An immortal, such as a corporation, has to use a safer number, such as 3%, or 2.5% for operations and 0.5% in fees for the fiduciary management. So the permanent endowment needs to be 40x annual operating costs, and the fiduciary needs to grow it by 3% better than (price) inflation per year. That's relatively easy to do when most of the principal won't be touched within the next 30 years: buy all the publicly-traded stocks that have historically paid regular dividends, and reinvest whatever isn't paid out. On a long enough time scale, that's probably 7% better than inflation.

So the fiduciary could possibly be replaced by a robot that only needs 0.05% annually for maintenance, and then you'd only need to endow 34x annual operating costs to run forever.


Yes. Generally and for the purposes of this discussion, individuals and corporations can both buy investments in the public markets with similar risk/return profiles. Hence the spending ratio works out similar.

The 4% spending ratio theoretically varies with market performance but evens out over time. 7-8% typical returns for a total market index/etf, minus a couple % to account for inflation.


The % is lower for corporations than for humans, because corporations intend to outlive humans.



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