Rich_by_the_Bay
Moderator Emeritus
...right here.
A: You won't hear it from the expensive advisers, but your insight is right on. The 4 percent rule was derived from studies using raw indexes, so spending needs to be adjusted downward against high management expenses. Basically, they can have dinner or you, but not both.
Fortunately, you don't have to subtract it directly from the 4 percent. Instead, you run a survival study that subtracts the higher fees from the gross return. Then you shoot for the withdrawal rate that will give you the same survival odds.
You can experiment with this by using the retirement portfolio survival calculator at FIRECalc: A different kind of retirement calculator. It allows you to construct portfolios with different asset classes and to set a management expense for the portfolio. Then it computes the survival odds at different withdrawal rates.
Fortunately, you don't have to subtract it directly from the 4 percent. Instead, you run a survival study that subtracts the higher fees from the gross return. Then you shoot for the withdrawal rate that will give you the same survival odds.
You can experiment with this by using the retirement portfolio survival calculator at FIRECalc: A different kind of retirement calculator. It allows you to construct portfolios with different asset classes and to set a management expense for the portfolio. Then it computes the survival odds at different withdrawal rates.
