four percent rule

How to Pick Dividend Stocks to Beat the 4% Rule to FIRE

We have all heard of the 4% rule as the guide to retiring early. As long as we don't withdraw more than 4% of our savings each year, we can maintain the same quality of life without ever running out of retirement funds.

We talk about how the 4% rule works, and how to pick stocks with more than 4% dividend yield to speed up your passive income for early retirement.

What Is the 4% Rule?

The 4% rule is a shortcut to calculating the Safe Withdrawal Rate from your retirement savings. If you withdraw no more than 4% of your total equity each year, then you can enjoy a comfortable lifestyle and never run out of money.

How Long Can You Live on the 4% Rule?

When William Bengen discovered the 4% rule in the 90s, he first analysed the market performance and different retirement scenarios over the past 75 years to find a safe withdrawal rate. Then he proposed that as long as you don't withdraw more than 4% of your life savings per year, you will never worry about running out of money in your lifetime.

We are confident the 4% rule can let us enjoy at least 30 years of retirement.

The 4% Rule Formula for Retirement

Since we want to keep our costs below 4% of our total equity, we simply multiply our annual expenses by 25 to find our target retirement fund.

Target Retirement Savings = Annual Expenses X 25

So we can create a comparison where our annual expenses meet the target retirement savings. This shows we can speed up our retirement by reducing costs in our lifestyle and accumulating wealth through savings.

Annual expensesTarget retirement savings

Why Use the 4% Rule?

There are a few advantages to planning your retirement with the 4% rule:

  • The rule helps us set a money-saving goal quickly, and maintain good money habits.
  • It is a time-tested, believable rule of thumb.
  • A disciplined withdrawal rate of less than 4% should maintain a consistent quality of retirement.

Risks of the 4% Rule

Here are some risks to planning your retirement with the 4% rule:

  • In the event of big and unexpected inflation, a 4% withdrawal rate may not be enough.
  • Some people may feel leaving too much savings behind as inheritance is missing out on a better quality of life.
  • The retirement cash flow may not be enough to cover medical emergencies and other unexpected expenses.
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How to Pick Stocks With More Than 4% Dividend Yield

Since we want to retire with 4% of our equity, we can use the Dividend Stock Picker to find blue-chip stocks with more than 4% yield for long-term investment. So we can live on the dividends during retirement.

We can find long-term investment opportunities like dividend kings and dividend aristocrats:

  • With more than 25 consecutive years of increasing dividends.
  • More than 4% dividend yield.
  • Also more than 10% in Upside so we have enough margin of safety to avoid stock price crashes.
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Find undervalued, high-yield dividend aristocrats in seconds.

Finally, we sort the list by Dividend Yield. We get a list of value stocks with a great dividend-paying record with more than 4% yield.

StocksDescriptionLastFair valueUpsideDividend yieldYears of dividend growth
WBAWalgreens Boots Alliance Inc$29.98$37.7826.02%6.43%48
WPCW.P. Carey Inc$66.45$73.9911.35%6.43%26
UGIUGI Corp$24.43$31.5929.31%6.14%36
FLICFirst of Long Island Corp$13.85$19.3839.93%6.06%27
MMM3M Co$105.49$118.6712.49%5.69%65
AROWArrow Financial Corp$20.44$31.0351.81%5.28%30
NNNNational Retail Properties Inc$40.32$45.8113.62%5.19%34
ORealty Income Corp$59.22$67.8514.57%5.18%30
NWNNorthwest Natural Holding Co$41.33$47.0513.84%4.48%67

The WBA stock has been increasing in dividends for 48 years straight. We can expect a 6.43% dividend yield for holding the stocks, with a 26% potential Upside for a bullish outlook. There is a high probability of providing us with passive income for retirement.

Now you know the importance of the 4% rule, apart from reducing expenses, we can use the dividend scanner to find consistent dividend income.

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