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Analysis/explanation of 4% rule
Old 04-27-2015, 08:52 AM   #1
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Analysis/explanation of 4% rule

A good analysis and explanation (IMO) of the 4% rule. Not sure I agree with commentary regarding annuities but for the most part an objective analysis.

https://www.fidelity.com/insights/re...ithdrawal-rule
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Old 04-27-2015, 09:57 AM   #2
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It's a good summary of many of the things Wade has been saying over the past three years.
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Old 04-27-2015, 10:46 AM   #3
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I don't think there's anything wrong with the 4% rule; the problems are with how it is often portrayed or interpreted. My definition of the 4% rule is as follows: "Given assumptions X, Y, and Z (where X, Y, and Z are things like the future won't be worse than the past, I won't live more than n years, my portfolio will be such-and-such, etc), I can spend 4% yearly inflation-adjusted and have a p% chance that I won't go broke".

This is much different than simply saying "I can spend 4% inflation-adjusted each year and not go broke", but the rule is often misinterpreted to mean this.
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Old 04-27-2015, 10:49 AM   #4
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And his answer to the rule of thumb question just about had me spitting out my coffee...

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There are no easy answers. People shouldn't spend more time shopping for their next vacuum cleaner than thinking about how they will manage their retirement income strategy.
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Old 04-27-2015, 10:55 AM   #5
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Quote:
Originally Posted by Which Roger View Post
I don't think there's anything wrong with the 4% rule; the problems are with how it is often portrayed or interpreted. My definition of the 4% rule is as follows: "Given assumptions X, Y, and Z (where X, Y, and Z are things like the future won't be worse than the past, I won't live more than n years, my portfolio will be such-and-such, etc), I can spend 4% yearly inflation-adjusted and have a p% chance that I won't go broke".

This is much different than simply saying "I can spend 4% inflation-adjusted each year and not go broke", but the rule is often misinterpreted to mean this.
True. Granted, even if you did get a 100% probability that you won't run out of money, the numbers are based on past/historical performance so depending on what the future holds, there's still a very slim chance that you might go broke.

Of course, there's also a chance that you'll get hit by the bus tomorrow so none of this would matter.
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Old 04-27-2015, 11:03 AM   #6
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Quote:
Originally Posted by Onward View Post
It's a good summary of many of the things Wade has been saying over the past three years.
+1
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