The 4% withdraw rule and why you may never need to completely cash out of Steemit

Note: This is not investment advice!

The safe withdraw rate

• Inflation is 3% per year.
• The market (stocks and bonds) typically gain 7% per year.
• This leaves 4% which you can cash out each year indefinitely.

The cryptospace is growing at a brilliant pace and is over 100 billion so far. We could see a space of 1 trillion total market cap by 2020. At the same time some people believe it is a bubble and that the majority of the crypto-assets in this space will crash down in the future. This may be true for cryptospace but the same might also be true for stocks, for bonds, for gold, as there are cycles of bull and bear markets, where sometimes there is recessions or even a depression which lasts for a few years.

Once your basic living expenses are covered by the 4% you cash out each year then you're effectively sustainable indefinitely. Your portfolio will beat inflation if properly diversified and strategically chosen. Your 4% of your portfolio will represent enough money each year to support the cost of living even with inflation of 3% if the market grows at 7%. Cryptospace is growing even faster than 7% so if you're in the right tokens you'll essentially be set for life once you have a large enough portfolio.

How large is a large enough portfolio?

This is up to the individual and how they want to live. For some people $500,000 in crypto is enough. For others $1 million in crypto is enough. For some others maybe it's $5 million. The point is each person has some target number which if reached they'll be able to live indefinitely off 4% cashout. Figure out how much you need to spend a year in order to be comfortable for the rest of your life, and when your portfolio is large enough that 4% of it can support that level of comfort then you've won the financial independence game.

Conclusion

Someday in the future there will be many among us who have Steemit accounts worth over $1 million dollars. What will you do when your account is worth over $1 million and have you done any financial planning for what to do when that occurs? I'd like to hear what people plan to do because many people have mentioned they expect Steemit to reach $10, or even $100. If Steemit reaches these prices then there will be accounts worth millions of dollars. The security on these accounts will have to be improved, but in addition, the best time to discuss withdraw rates is today. Perhaps developers could even implement a 4% automatic withdraw into bank account or similar as an alternative to the in my opinion overly accelerated power down. A power down rate of 4% a year could allow an account to in theory power down indefinitely and the account holder to live off this.

References

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Finke, M. S., Pfau, W. D., & Blanchett, D. (2013). The 4 percent rule is not safe in a low-yield world.

Milevsky, M. A., & Robinson, C. (2005). A sustainable spending rate without simulation. Financial Analysts Journal, 89-100.

Stout, R., & Mitchell, J. B. (2006). Dynamic retirement withdrawal planning.

Cooley, P. L., Hubbard, C. M., & Walz, D. T. (1998). Retirement savings: Choosing a withdrawal rate that is sustainable. AAII Journal, 20(2), 16-21.