I'm delighted to finally find a good withdrawal calculator and discussion about it. I retired early 10 years ago and we've been taking too high a withdrawal. I've been in the process for several weeks of trying to figure out what a "safe" rate is. What a great service you provide.
My first question: since the calculator doesn't adjust for taxes, can I simply estimate annual taxes and add them to the fees in the calculator?
My second question: when the calculator shows the average amount of principal left at the end, is that before adjusting for inflation?
And my third question: I keep reading here and elsewhere the default assumption that 4% is a safe initial withdrawal rate. I've traced this idea back to William Bengen's articles on the subject in the Journal of Financial Planning, beginning in 1994. That makes sense, because it must have been around 1994 that typical investment portfolios stopped producing 4-5% of actual income. In his first article, Bengen does come to a 4% "safe" withdrawal rate, but only under very narrow circumstances, including: (1) your investments are 100% tax sheltered; (2) you never increase the withdrawal except for inflation; and (3) you're willing to risk running out of money in about 30 years, which means 4% doesn't work in early retirement.
I get about the same result on FIRECalc under those assumptions. But are most people really in that situation? Most early retirees? I'm certainly not. Is 4% really safe for most people? I can't imagine being age 85, no longer able to earn money, and realizing that all that's left in my investments is enough for a couple of years' expenses.
Thanks.
Jim
My first question: since the calculator doesn't adjust for taxes, can I simply estimate annual taxes and add them to the fees in the calculator?
My second question: when the calculator shows the average amount of principal left at the end, is that before adjusting for inflation?
And my third question: I keep reading here and elsewhere the default assumption that 4% is a safe initial withdrawal rate. I've traced this idea back to William Bengen's articles on the subject in the Journal of Financial Planning, beginning in 1994. That makes sense, because it must have been around 1994 that typical investment portfolios stopped producing 4-5% of actual income. In his first article, Bengen does come to a 4% "safe" withdrawal rate, but only under very narrow circumstances, including: (1) your investments are 100% tax sheltered; (2) you never increase the withdrawal except for inflation; and (3) you're willing to risk running out of money in about 30 years, which means 4% doesn't work in early retirement.
I get about the same result on FIRECalc under those assumptions. But are most people really in that situation? Most early retirees? I'm certainly not. Is 4% really safe for most people? I can't imagine being age 85, no longer able to earn money, and realizing that all that's left in my investments is enough for a couple of years' expenses.
Thanks.
Jim