JustCurious
Thinks s/he gets paid by the post
- Joined
- Sep 20, 2006
- Messages
- 1,396
Can you safely withdraw more than 4% per year if you start with a principal balance which provides more than you need? Consider a hypothetical retiree, let's call him Mr. Gotrocks.....
Mr. Gotrocks needs $80,000 per year to live a comfortable life in retirement. To sustain that at 4%, he would need a starting balance of $2 million. He has $4 million. Therefore, Mr. Gotrocks could safely withdraw $160,000 per year (inflation adjusted) which is twice what he needs to live comfortably in retirement.
In this hypothetical, doesn't Mr. Gotrocks have the option of withdrawing as much as he wants, so long as he doesn't allow the principal balance to fall below $2 million? (I understand the $2 million has to adjust with inflation) For example, couldn't Mr. Gotrocks live it up early in his retirement, and spend hundreds of thousands of dollars per year, so long as he stops his spending spree when his portfolio drops to $2 million, inflation adjusted?
Of course, he runs the risk that he may get so accustomed to his high living that he won't be able to cut back after several years of profligacy. But let's assume that he has tremendous self control, and he can cut back when needed. What is the flaw in this plan?
Mr. Gotrocks needs $80,000 per year to live a comfortable life in retirement. To sustain that at 4%, he would need a starting balance of $2 million. He has $4 million. Therefore, Mr. Gotrocks could safely withdraw $160,000 per year (inflation adjusted) which is twice what he needs to live comfortably in retirement.
In this hypothetical, doesn't Mr. Gotrocks have the option of withdrawing as much as he wants, so long as he doesn't allow the principal balance to fall below $2 million? (I understand the $2 million has to adjust with inflation) For example, couldn't Mr. Gotrocks live it up early in his retirement, and spend hundreds of thousands of dollars per year, so long as he stops his spending spree when his portfolio drops to $2 million, inflation adjusted?
Of course, he runs the risk that he may get so accustomed to his high living that he won't be able to cut back after several years of profligacy. But let's assume that he has tremendous self control, and he can cut back when needed. What is the flaw in this plan?