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Old 07-24-2017, 06:47 AM   #21
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+1
However, I'm curious as to why the poster believes it's "no longer relevant". ( or should I not even go there?)
Well, reasonable people can make the case that the US markets won't see the kind of growth we have seen in the past. Could very well be true. But I recall hearing that in the 70's and 80's as well.

Remember when Japan was going to take over the world, and every kid better learn Japaneses? Then it changed to Chinese?

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Old 07-24-2017, 06:53 AM   #22
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Originally Posted by ERD50 View Post
Well, reasonable people can make the case that the US markets won't see the kind of growth we have seen in the past. Could very well be true. But I recall hearing that in the 70's and 80's as well.

Remember when Japan was going to take over the world, and every kid better learn Japaneses? Then it changed to Chinese?

-ERD50
Oh boy, time to segue into the international diversification holy war!

Quick. Question.

MrLoco--you've received quick, good answers to your question. Now, excuse us as we go and beat the bushes.
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Old 07-24-2017, 06:58 AM   #23
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Well, reasonable people can make the case that the US markets won't see the kind of growth we have seen in the past. Could very well be true. But I recall hearing that in the 70's and 80's as well.
-ERD50
And reasonable people have been saying that for years, but then look at how long this bull is running? The answer of course is that past results are not a guarantee blah blah blah, but that we're all just guessing, and, at the time, the 4% was a decent guesstimate for a 30 year retirement.

Still might be, might not, and probably better to hedge down to 3.5 or 3 to sleep well, since sleeping well at night is one of the best ER benefits.
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Old 07-24-2017, 07:48 AM   #24
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As others have indicated on this forum the 4% is a good rule of thumb for a 25-30 year plan with a AA=50/50. Since our ER plan was for 48 years (4 years ago) I approached it from how much my expenses need to be to provide the same lifestyle we enjoyed before we retired. That ended up being 2.6% WR. I increase this WR each year for inflation which I use 2.5% for normal expenses and 7.5% for healthcare. I felt for a 48 year plan that a starting WR of 2.6% was a safe rate based on running tools like FireCalc, Fid RIP and Flex Planner. Since SS benefits are so far away and with the uncertainty surrounding how they plan to fix it (kick the can) I did not include this income in our plan which give us a buffer when we do start collecting what ever amount they can payout when we reach FRA. Our current plan shows us hitting a WR of 4% at age 70 which is when we will start paying taxes on our RMD's from our retirement accounts. We will hit 5% WR at 80, 6% at 86, 7% at 89, 8% at 91.... I know our current WR is on the conservative side but we have only been ER'ed for 4 years and still finding our footing and confidence in our plan. We do not have heirs so we want to spend every last cent, but with 44 years left in the plan and the state of healthcare it is too risky (IMO) to spend to the max now.... Maybe I'll give ourselves a big raise when I reach 60 .....
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Old 07-24-2017, 08:40 AM   #25
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Well, reasonable people can make the case that the US markets won't see the kind of growth we have seen in the past. Could very well be true. But I recall hearing that in the 70's and 80's as well.

Remember when Japan was going to take over the world, and every kid better learn Japaneses? Then it changed to Chinese?

-ERD50
for 4% inflation adjusted to hold mathematically all it takes is a 2% real return the first 15 years as an average .

remember , it is based on worst outcomes , not average or better .
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Old 07-24-2017, 11:15 AM   #26
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Originally Posted by marko View Post
+1
However, I'm curious as to why the poster believes it's "no longer relevant". ( or should I not even go there?)
He's not the only one who's been saying that. It's been making the rounds the past few years.


I think it's just "recency". We've had a bad ...12 years or so.... followed by a recovery that's looks like it's begging for a relapse. By some calculations the year 2000 retiree is pretty much circling the drain. This has happened before but now it appears there is one more Failure to add on the list with 1906, 1937, 1965, 1966 etc al. It just makes things look bad now.
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Old 07-24-2017, 11:43 AM   #27
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Taleb is right, but I think it is wrong to dismiss it as a wild-ass guess or a fable.
Agreed. I was trying a little too hard to be cute.

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Following this model blindly, like many in the financial industry followed their models in past melt-downs, is the wrong thing to do. That's why I believe that anyone planning to use these methods needs to study (not just read) the original papers with all the caveats.

Black Swans can show up anywhere - in annuities, in pensions, in social security, in health, in civilizations etc. So, what's a person to do? I say, start with some rational method (historical performance in this case) and pay close attention. Be flexible and be conservative.
I agree totally. But the thing that I have to keep reminding myself is that all our impassioned discussion of strategies is based on inductive reasoning, as was Taleb's turkey's complacency.

There is another good one, too: “But in all my experience, I have never been in any accident … of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort.” -- (E. J. Smith, 1907, Captain, RMS Titanic)

The ironic thing is that as investors we have seen several near-sinkings of our ships, like the 57% decline in the S&P 500 circa 2008 & early 2009. Yet we still sit at our spreadsheets and look at smooth, straight, lines.
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Old 07-24-2017, 11:54 AM   #28
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He's not the only one who's been saying that. It's been making the rounds the past few years.


I think it's just "recency". We've had a bad ...12 years or so.... followed by a recovery that's looks like it's begging for a relapse. By some calculations the year 2000 retiree is pretty much circling the drain. This has happened before but now it appears there is one more Failure to add on the list with 1906, 1937, 1965, 1966 etc al. It just makes things look bad now.
But it really has nothing to do with "relevant" or "irrelevant".

If you want to plan for the next 30 years being worse than the worst of what we have in the historical database in the Trinity study or FIRECalc, then you should plan on a less than 4% initial WR.

That is the same as it ever was. The "guideline", "rule" or whatever hasn't changed, it's backwards looking. It's always been a benchmark of sorts, and then up to the individual to apply it as they see fit.

-ERD50
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Old 07-24-2017, 12:46 PM   #29
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Originally Posted by marko View Post
+1
However, I'm curious as to why the poster believes it's "no longer relevant". ( or should I not even go there?)
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Originally Posted by ERD50 View Post
But it really has nothing to do with "relevant" or "irrelevant".

If you want to plan for the next 30 years being worse than the worst of what we have in the historical database in the Trinity study or FIRECalc, then you should plan on a less than 4% initial WR.

That is the same as it ever was. The "guideline", "rule" or whatever hasn't changed, it's backwards looking. It's always been a benchmark of sorts, and then up to the individual to apply it as they see fit.

-ERD50
Well put.

I came to all of this material relatively recently. Long after it was created.

Is there something so complicated in these studies that prevents people from understanding what they actually said - that they described the safety/risk of past, historical scenarios "succeeding" or "failing" based on a range of factors? The studies and original (and some subsequent) commentary around them were incredibly insightful.

The rest of it is fiction with other people expressing their opinions and biases which made up the mythology about this being a "rule" or a prediction system for the future against which you could measure your particular retirement plan. It is not.

It is extremely relevant and very useful stuff that has concrete limits to value in any one situation.
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Old 07-24-2017, 01:54 PM   #30
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But it really has nothing to do with "relevant" or "irrelevant".

If you want to plan for the next 30 years being worse than the worst of what we have in the historical database in the Trinity study or FIRECalc, then you should plan on a less than 4% initial WR.

That is the same as it ever was. The "guideline", "rule" or whatever hasn't changed, it's backwards looking. It's always been a benchmark of sorts, and then up to the individual to apply it as they see fit.

-ERD50
That's what I said.
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Old 07-24-2017, 02:45 PM   #31
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If you may allow me to 'pick on you' a little (nothing personal), I think your statement encapsulates the problem.

The "4% whatever-we-want-to-call-it" is as relevant today as it ever was. It is a historical study. AFAIK, history still shows that a 4% inflation adjusted withdraw approach over 30 years has succeeded in 95% of the time periods in our historical database. So it is still true, so it is still relevant.


The "4% whatever-we-want-to-call-it" never was meant to, never can, never will, and has no mechanism whatsoever to predict the future. It was never relevant in that regard, so it is still irrelevant in that regard.

If you try to apply something improperly, the results are meaningless.

I think it is useful to understand how we would have fared in past cycles. The study is useful for that. Period.

-ERD50
Hi, Firebug here….the “Fuh git bout it” guy. Re-reading the comment it does come across as flipped, and as most late night postings go, that was not my intent. But I find this thread interesting.
Firstly I in no way disparage or criticize the 4% Rule with respect to its underpinnings, data, or models. I did not mean to imply the ‘rule’ is irrelevant but rather to get away from the fixation 4% is a magical bullseye. I know that many participants on this forum are great with math and financials. Sadly, while coming from a family of engineers, I never received that mathematical gene. I believe the rule itself to be solid in most of its forms. But I tend to look at things a little more abstractly. It would be great to get into the head of founders to understand what their hopeful end goal was to be. My guess is that they hoped to quantify a mathematical function identifying a specific WR that given a set of predefined investments, historical data and economic principles, would statistically guarantee returns sufficient enough to enjoy retirement without running out of money. Fair enough.
But I think you hit it on the head when you referred to it as “whatever”. If the model even remotely presented itself as a “whatever’ I would have just glossed over this topic as another interesting thread. But, here’s (in my opinion), the difference. People often look rules to simply their lives. Everyone can’t be an expert in everything and as this forum can attest to. Perhaps the biggest hurdle of all with respect to financial freedom is the understanding that it is not rocket science. To that end when people hear (quite frequently I might add) that there is this thing call a 4% rule. They gravitate towards it, accept it, and use it. Note it’s not referred as the 4% guideline, or the 4% approach. Rules tend to have very narrow boundaries and seek to minimize exceptions and while I don’t know who coined the phrase 4% rule I can assuredly tell you that is what people know it by. I too would like it to be a “whatever”. But it is not.
Having looked at this topic (other threads) many times, I can see where the comments are decisively like this, “That 4% rule…yeah good stuff, but I find that 3.75% is my sweet spot”, “3.25% over here”. “I like 4.5%”, “Conservative at 2.75%”… I just take issue with aligning with something called a 4% rule. So when the OP questions the details of a specific unwavering 4% WR, my point, although poorly made, is it’s more of a guideline, than a rule and while past performance does not dictate future results, one could argue that todays financial climate is not as historically aligned as we might think.

and no....you are not picking on me. thx
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Old 07-24-2017, 03:36 PM   #32
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Hi, Firebug here….the “Fuh git bout it” guy. Re-reading the comment it does come across as flipped, and as most late night postings go, that was not my intent. But I find this thread interesting.
Firstly I in no way disparage or criticize the 4% Rule with respect to its underpinnings, data, or models. I did not mean to imply the ‘rule’ is irrelevant but rather to get away from the fixation 4% is a magical bullseye. I know that many participants on this forum are great with math and financials. Sadly, while coming from a family of engineers, I never received that mathematical gene. I believe the rule itself to be solid in most of its forms. But I tend to look at things a little more abstractly. It would be great to get into the head of founders to understand what their hopeful end goal was to be. My guess is that they hoped to quantify a mathematical function identifying a specific WR that given a set of predefined investments, historical data and economic principles, would statistically guarantee returns sufficient enough to enjoy retirement without running out of money. Fair enough.
But I think you hit it on the head when you referred to it as “whatever”. If the model even remotely presented itself as a “whatever’ I would have just glossed over this topic as another interesting thread. But, here’s (in my opinion), the difference. People often look rules to simply their lives. Everyone can’t be an expert in everything and as this forum can attest to. Perhaps the biggest hurdle of all with respect to financial freedom is the understanding that it is not rocket science. To that end when people hear (quite frequently I might add) that there is this thing call a 4% rule. They gravitate towards it, accept it, and use it. Note it’s not referred as the 4% guideline, or the 4% approach. Rules tend to have very narrow boundaries and seek to minimize exceptions and while I don’t know who coined the phrase 4% rule I can assuredly tell you that is what people know it by. I too would like it to be a “whatever”. But it is not.
Having looked at this topic (other threads) many times, I can see where the comments are decisively like this, “That 4% rule…yeah good stuff, but I find that 3.75% is my sweet spot”, “3.25% over here”. “I like 4.5%”, “Conservative at 2.75%”… I just take issue with aligning with something called a 4% rule. So when the OP questions the details of a specific unwavering 4% WR, my point, although poorly made, is it’s more of a guideline, than a rule and while past performance does not dictate future results, one could argue that todays financial climate is not as historically aligned as we might think.

and no....you are not picking on me. thx
It sounds naive to refer to a 4 % rule. So we busily backtrack and deny that is was ever in any sense a rule. Well, agreed, it was never formally baptized a rule, but I see it mentioned all the time here, especially in the "can I retire now' threads. So it appears that a large portion of people who have heard about this, operationally think of it and often refer to it as a rule.

I believe that if you have a good cola pension, or 10 million dollars, don't worry. Unless you are very foolish or the world's all time most unlucky person you will be fine. But for most of us, there are irreducible risks to be confronts along the way to a very early retirement.

Ha
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Old 07-24-2017, 04:10 PM   #33
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... It would be great to get into the head of founders to understand what their hopeful end goal was to be. My guess is that they hoped to quantify a mathematical function identifying a specific WR that given a set of predefined investments, historical data and economic principles, would statistically guarantee returns sufficient enough to enjoy retirement without running out of money. Fair enough. ..
My take on it is, the only thing they 'had in their head' was to show how a portfolio and inflation adjusted withdrawals would have performed in the history we have. It's valuable, as it demonstrates what sequence of returns can do to you. Anything beyond that is up to the individual.


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It sounds naive to refer to a 4 % rule. So we busily backtrack and deny that is was ever in any sense a rule. Well, agreed, it was never formally baptized a rule, but I see it mentioned all the time here, especially in the "can I retire now' threads. So it appears that a large portion of people who have heard about this, operationally think of it and often refer to it as a rule. ...
OK, but any tool can be misused. We can't blame the hammer if it is used in a murder.

With respect to the 'can I retire now' threads, I suppose that would require the long-winded caveat in every step - something like "Yes, it looks like you can retire now at a 3.x % WR, based on a study of recent history, and assuming that the future is not worse than the worst of the past, that has been 100% successful". I would hope most people realize there are no guarantees in any of the comments from anyone on this forum, but only that we are pretty certain the data and study itself is pretty accurate for what it does.

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I believe that if you have a good cola pension, or 10 million dollars, don't worry. Unless you are very foolish or the world's all time most unlucky person you will be fine. But for most of us, there are irreducible risks to be confronts along the way to a very early retirement.

Ha
And how can we even know that that is enough (only semi-serious on that one)? But it always comes down to this - if you want to build a super conservative sized portfolio, you may never retire. Somewhere along the way, we make a choice. I think things like the Trinity study help to inform us and educate us, and that's good, but it can only go so far.

And separately, people often claim they will just cut back spending if things look bad. But I've done some modelling of that, and it ain't easy in practice. Is a couple years of -10% returns just normal volatility that we can ride out an enjoy life (very likely), or is it the beginning of a 95% drop? If it is the latter, you need to make huge cuts in spending right now. If it is just a blip, that kind of cutting back means you gave up a lot of things you enjoy, and you may never get those opportunities to enjoy life on that scale back again. None of us are getting any younger (maybe one of the few things we can all agree on?).

For me, it is a 100% historically safe scenario, plus a little buffer. If that leads to failure, I'll just have to accept it. But I could have tried to stay employed for the past 10 years, and who knows what shape I'd be in. But I have more buying power now than when I retired. Some luck in that of course, but I can't imagine trading in the freedom I've had for additional cushion.

At least if I fail, I can say I did my homework, figures I'd be good if things were worse than ever before, and despite those plans, I lost. At least I had a plan, and a great time! Not sure what else we can do.

Not arguing with you, just throwing my thoughts out there - probably more for myself than anyone else. Sometimes it's good to put your thoughts down in 'writing', just for yourself.

-ERD50
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Old 07-24-2017, 04:50 PM   #34
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If life were more linear; rules of thumb would be more useful.

I prefer using VariablePercentageWithdrawl spreadsheet to Firecalc.
OP you can plug in a few numbers and on the Backtesting Tab set your retirement year to 1965 and see if you can live with the results. Plan for the worst and hold some cash to smooth spending!

My $0.02
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Old 07-24-2017, 11:57 PM   #35
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1965 is the most recent bad year, but not the worst. There are several starting years pre 1920 that are very nasty. FIRECALC does include some really tough US economic periods since it goes all the way back to 1870.
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Old 07-25-2017, 01:07 AM   #36
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I know this has been discussed numerous times , but I just want to be sure. Let's assume I have $1 million in a taxable account invested in a 60/40 balanced fund.

I currently DO NOT reinvest the dividends as these are taxed either way....so dividends (assume at 2%) are directed to my bank account.

I then withdraw an additional 2% of the earnings every year to get me to the 4%. Put aside inflation issues for the moment to keep the math simple.
So I have withdrawn 4% ($40,000) from the portfolio.

If dividends are only 1.5% the following year, then I would withdraw 2.5% from earnings to reach 4.0%. Do I have this right?

Also, does the withdrawal need to be adjusted (downward) if a bear market occurs to account for sequence of return risk or is this risk already "baked" into the equation and a non-issue? Thanks.
I have always used the so-called 4% rule to help calculate how much I would need to retire. (If I want to withdraw $50K/year, then I need about $1.25 mil stash, etc.) As far as actually taking out the money, I play it by ear. If things are going well, I might take more than 4% but if there is an 07/08 downturn, I might only take 2% and pull that belt up tight. YMMV
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Old 07-25-2017, 01:12 AM   #37
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Many on the blawg are far more conservative than I, advocating 2% or 3% withdrawals to be "safe."
And that is fine, but I suspect that the upshot is that they will likely leave a huge legacy to their heirs or charity, based on the last 100 years of data and research. Which is cool--I have no criticism of that.

Myself, I think Bergen's research indicates that you are highly likely at 4% withdrawal to leave your mortal coil with at least the same portfolio as you started and, more likely, a considerably higher portfolio.

Our plan has about 60% to fund expenses and 40% luxuries like foreign travel, so I'm fine with planning on 4%. In fact for a few years until SS kicks in, I'll probably be drawing 6%-6.5, but only for about 4 years.

YMMV, and do as you think to be prudent.
My only point is that most of the 2-3%ers on the blog are likely to leave a yuge bequest, and many actually plan on that, so it's cool.
I also plan to change withdrawal rate based on circumstances, as I think almost everyone here will do-well, if stocks go up 100% over the next 5 years I'm not sure the 3%ers will withdraw 3%. (Well, they should stick to 3% plus inflation at least.)

Noone knows the future, but my suspicion is that the dataset includes most likely outcomes. Black swans are, to be sure, . . . . . black swans. Nuclear winter, for instance would not be good for even an ultrasafe 2% withdrawal plan--but I state the obvious.

(Now that I read up, I think Audrey and ERD stated my view far more succinctly and effectively.)

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Hi, Firebug here….the “Fuh git bout it” guy. Re-reading the comment it does come across as flipped, and as most late night postings go, that was not my intent. But I find this thread interesting.
Firstly I in no way disparage or criticize the 4% Rule with respect to its underpinnings, data, or models. I did not mean to imply the ‘rule’ is irrelevant but rather to get away from the fixation 4% is a magical bullseye. I know that many participants on this forum are great with math and financials. Sadly, while coming from a family of engineers, I never received that mathematical gene. I believe the rule itself to be solid in most of its forms. But I tend to look at things a little more abstractly. It would be great to get into the head of founders to understand what their hopeful end goal was to be. My guess is that they hoped to quantify a mathematical function identifying a specific WR that given a set of predefined investments, historical data and economic principles, would statistically guarantee returns sufficient enough to enjoy retirement without running out of money. Fair enough.
But I think you hit it on the head when you referred to it as “whatever”. If the model even remotely presented itself as a “whatever’ I would have just glossed over this topic as another interesting thread. But, here’s (in my opinion), the difference. People often look rules to simply their lives. Everyone can’t be an expert in everything and as this forum can attest to. Perhaps the biggest hurdle of all with respect to financial freedom is the understanding that it is not rocket science. To that end when people hear (quite frequently I might add) that there is this thing call a 4% rule. They gravitate towards it, accept it, and use it. Note it’s not referred as the 4% guideline, or the 4% approach. Rules tend to have very narrow boundaries and seek to minimize exceptions and while I don’t know who coined the phrase 4% rule I can assuredly tell you that is what people know it by. I too would like it to be a “whatever”. But it is not.
Having looked at this topic (other threads) many times, I can see where the comments are decisively like this, “That 4% rule…yeah good stuff, but I find that 3.75% is my sweet spot”, “3.25% over here”. “I like 4.5%”, “Conservative at 2.75%”… I just take issue with aligning with something called a 4% rule. So when the OP questions the details of a specific unwavering 4% WR, my point, although poorly made, is it’s more of a guideline, than a rule and while past performance does not dictate future results, one could argue that todays financial climate is not as historically aligned as we might think.

and no....you are not picking on me. thx
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Old 07-25-2017, 05:14 AM   #38
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Many on the blawg are far more conservative than I, advocating 2% or 3% withdrawals to be "safe."
And that is fine, but I suspect that the upshot is that they will likely leave a huge legacy to their heirs or charity, based on the last 100 years of data and research. Which is cool--I have no criticism of that.
We are relieved to have your approval!

Ha
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Old 07-25-2017, 05:44 AM   #39
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The 4% Rule is also where the 25x current living expenses came from. Again, no insult to anyone, let's not all be obtuse about this. No one, with the financial acumen to plan a successful FIRE, would ever believe there is a magic maximum amount rule of withdrawal. The study also does NOT refer to the rule as "if you follow this, you will have a successful 30 year retirement" , nor, does it suggest that was the case in the past. It simply shows that historically one can withdraw 4% for 30 years wih a 50/50 mix and 95% of the time end up with zero or greater. Sometimes 3 times or more greater.

At this forums level of discussion, a successful retirement and the 4% Rule are only loosely associated. I will likely use Kitces variable withdrawal rate, based on inflation and returns because I WANT to use as much as possible, I will not retire until 61/62, and all my savings are basically discretionary and uber emergencies money. I didn't work as long as Indid to save it. I did it to spend it. This is totally different from someone that retires at 40 and all income is based on savings, for all the reasons oft discussed here. A successful retirement is much more than just income. Its expenses, location, desires, COL, health costs, single/married etc, etc.

BTW, it's flippant, not flipped.
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Old 07-25-2017, 05:51 AM   #40
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Originally Posted by RobLJ View Post

Noone knows the future...
Please leave me out of this discussion.
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