Analysis/explanation of 4% rule

[MN317]

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/retirement/rethinking-the-withdrawal-rule

 

[Onward]

It's a good summary of many of the things Wade has been saying over the past three years.

 

[Which Roger]

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.

 

[Theseus]

And his answer to the rule of thumb question just about had me spitting out my coffee...

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.

 

[hnzw_rui]

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.

 

[Midpack]

It's a good summary of many of the things Wade has been saying over the past three years.

+1