This can only be known in retrospect.
If someone retired in Jan 2000 with $1M invested 100% US Stock Index and withdrew 4.6%, they would have run out of money in Dec 2022. TMDV. (Those that followed the Ramsey 7% would have gone bust in 2011)
Even 4% would have been very hard to stick with for this cohort. At the end of 2008, their portfolio would have been down to $404K and their 2009 withdrawal would have been $50K. Who could stick with that?
When you retire, your plan with either succeed or fail, it's binary. The fact that 95% of people will succeed is of no comfort if you go bust in your 80's.
The only way to minimize failure is to save more and spend less. Of course, this means that looking back you will, in the vast majority of cases, have saved too much but this could not have be known ex ante.
I ran my own hypothetical numbers, pretending I retired on 12/31/1999, and using the actual rates of return I had gotten over the years. And also using the official inflation rate numbers I'd found online over the years. To keep it simple, I used $1M as a starting point, and $30K withdrawal for the 3%, $40K for the 4% etc.
Well, at 4%, that $1M would be whittled down to $50,234 as of 12/31/2022. Inflation would have brought that $40K back at the beginning to $70,333. So, pretending linear spending (not realistic, I know) I would be running out of money roughly 8.57 months into this year. Which would be, roughly, this Sunday!
I always had a feeling that the end of 1999 (or 1/1/2000) would end up being one of the "failure" cycles for a lot of people. There was the one-two punch of retiring right into a recession, and not enough recovery time before the second recession came around.
In my case, my portfolio went down each year in 2000/2001/2002. In my hypothetical calculation, on 12/31/2002, I would be at $431,617, but forecast to spend $43,030 for 2003. So that initial 4% withdrawal rate has now skewed to 10%.
2003-2007 were all great years, and by 12/31/07, I would have been at $641,807, with $49,974 set to withdraw for 2008. So my withdrawal rate has eased a bit to 7.8%, but still kind of high.
Well, 2008 knocked me down by about 41%. 2009 brought me up 40%, but as we all know, losing X% one year and then gaining X% the next does not make you whole again. And, having to withdraw at the bottom of the market, really hurt.
Now, I know my accounting is rather sloppy and simple. It just takes the inflation rate from the previous year, multiplies last year's withdrawal by that amount, and then assumes I'll take the new amount out on the first day of the new year. But realistically, I wouldn't have done that. Most likely, I would have set money aside as I needed it, in smaller increments, throughout the year.
For instance, my formula assumes I have $349,182 on 12/31/2008, and that I'll withdraw $50,024 on 1/1/2009 to live off of. At worst, I probably would have pulled out 1/12th of that in January, 1/12 in Feb, etc.
Still, I guess even my simplistic, flawed calculations show the resilience of the 4% rule. My scenario has it lasting 23 years, 8 months, and 17 days! It would have failed me personally if I had done it, because I was only 29 on 12/31/1999. But for someone later in life, about to go on SS, it would probably succeed.
And, cutting back to a 3% initial withdrawal rate, starting with $1M on 12/31/1999, and assuming "official" inflation rates, and my actual rates of return, on 12/31/2022, I would have been at $793,047. That $30K on 1/1/2000 would be inflated to $52,750 for my 2023 withdrawal. So, I'd say 3% definitely has a good chance of making it to 30 years, and beyond!
One thing interesting though, about using 3%. At no point in the spreadsheet, did the asset value ever get back above its starting point. In fact, it only broke $1M once, for 12/31/2021, where it got to $1,047,308. But $1M in 2021 was worth a lot less in real dollars than $1M in 1999. So yeah, that particular cycle (12/31/99 or 1/1/00 or whatever you want to call it) is definitely a tough one!
