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I know I have read many articles over the years in Money and Kiplingers that have made the claim that a 4% withdrawal rate, adjusted yearly for inflation, should last you 'for a XX year period'.
My question is, as long as your annual rate of return on your investment is greater than the rate of inflation, shouldn't your account value continue growing? (I realize I'm not accounting for market dips, but I don't think they do either in their articles).
For example, assume a $1,000,000 nest egg on December 31 of my final year of work. I take out $40,000 (4%) on the first day of my retirement year. And further assume a 3% inflation rate and 7% investment rate of return in retirement.
Then, after year 1 of retirement, my account would be:
1,000,000 - 40,000 = 960,000 * (1.07) = 1,027,200
Year 2 would then be:
1,027,200 - 41,200 (the original amount * 1.03) = 986,000 * (1.07) = 1,055,020, and so on.
Am I missing something here?
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