The Choices
Which answer is correct?
Divide annual spending by 0.04, or multiply by 25.
- A $40,000
- B $100,000
- C $250,000
- D $400,000
Answer: C · $250,000
$10,000 divided by 0.04 is $250,000. Every permanent $10,000 cut in annual spending can reduce the rough target by a quarter-million dollars.
The money lesson
The answer is $250,000. The 4% rule is shorthand for multiplying annual spending by 25.
This puzzle is designed to make one financial rule easier to remember. Use it as a starting point, then run your own numbers before making a real-world decision.