The 4 Percent Rule, and the Age Lait Says You Could Stop Working

On the plan screen Lait shows a sentence like "at this pace, free at 47". People ask how it is computed and how seriously to take it. Here is both.

The rule

The 4 percent rule comes from the Trinity study on US retirement portfolios: a balanced portfolio historically survived thirty years of withdrawals if you took out 4 percent of the starting value in year one and adjusted for inflation after. Flip it around and it says: to live on X per year, you need 25X invested.

It is a rule of thumb from US data, not a law. European bond yields, sequence-of-returns risk and a fifty-year horizon all argue for something more conservative, and Lait lets you set the rate. But 4 percent is the number everyone can compare against, so it is the default.

The three inputs

• Annual spending. Taken from your categorised transactions over the last twelve months, excluding transfers and investments. This is the input most people underestimate when they guess it and overestimate when they see it.
• Investable net worth. Liquid and semi-liquid assets, minus debt not tied to an asset. Your home is not in it (you live there), your mortgage is not subtracted from it (it belongs to the home).
• Monthly savings and expected real return. Savings from the same twelve months of transactions; the return is a real (after inflation) figure you set, with a cautious default.

The computation

Target = annual spending divided by the withdrawal rate. Then compound investable net worth forward, adding monthly savings, until it reaches the target. The number of months that takes, added to your age, is the "free at" age. If it never reaches the target at the current pace, Lait says so instead of printing a number past 90.

What moves the age the most

In order: spending, savings rate, return. Cutting annual spending by 10 percent lowers the target by 10 percent and raises the savings rate at the same time, so it moves the age twice. A one point change in expected return matters less than people think over fifteen years, and a lot over forty.

How to read it

It is a direction, not a date. Watch whether it moves left month over month. A tax estimate on the way out (see the Spanish taxes memo) and healthcare or housing changes at the far end are not in the figure. Treat it as the answer to "am I on a path at all", which is the question most people never get to ask because the inputs are scattered across six apps.