F.I.R.E User
Thinks s/he gets paid by the post
Why is the emphasis of first year 4% SWR important?
Does the 4% rule change as years go by in retirement?
Does the 4% rule change as years go by in retirement?
One interpretation of the 4% rule is that withdrawals to support spending in year 1 should equal no more than 4% of investments. In year 2 the withdrawal equals year 1 plus inflation from the prior year, which may be more or less than 4%. In year 3 the withdrawal equals year 2 + inflation from the prior year.
In reality few folks follow this guide to the letter. Also in reality spending usually declines as you advance in age, with the big exception of Healthcare costs, which can become very significant.
The 4% rule of thumb is more of a guide. Age at retirement also matters. The earlier you retire, the more conservative the withdrawal rate should be.
And of course, pensions, social security, annuities, rental income reduce the funds one needs to withdraw from investments.
How do I find the exact inflation rate for that year so I know how much to spend?
How do I find the exact inflation rate for that year so I know how much to spend?
How do I find the exact inflation rate for that year so I know how much to spend?
Why is the emphasis of first year 4% SWR important?
Does the 4% rule change as years go by in retirement?
Why is the emphasis of first year 4% SWR important?
Does the 4% rule change as years go by in retirement?
Have you plugged your numbers and spending into firecalc on this site?
Also someone will respond to your post soon and include a link to a list of questions you should ask yourself before you retire.
If the concern is about running out of money, then keep the WR lower or keep it at 4% without baking in inflation. Assuming investments continue to grow greater than 4%, 4% WR should result in more $ to spend anyway.
Again keep in mind that the 4% WR suggestion adjusted for inflation each year is not a typical withdrawal scheme, as has been noted that many retirees don't spend in a linear fashion.
The 4% "rule" is more useful in letting one know where they stand as to their readiness for retirement.
Try out Firecalc and check your results. Any questions on Firecalc can usually be answered here.
You start with 4% of initial portfolio value which gives you a certain $ amount and each year you adjust the $ amount by the prior year inflation. Prior year inflation is not actually known until around the 15th of the month so you could always use Nov-Dec inflation. Over 30 years you have around a 95% chance of not running out of money depending on the exact AA.
No one here seems to use this frequently modeled method.
How did you get the 95%?
Do you realize you need to do some of the research and calculations on your own? You are asking very elementary questions, answers to which can be found using the search feature on this site, and with google.