Hi Everyone- I feel like I am missing something. When I use the 25x yearly expenses assuming 4% withdrawal per year, it seems when I do it manually and assuming 3% inflation you run out of money, if you need to live on the money for 40-50 years.
Am I missing something. Is there a spreadsheet where I can play around with various figures.
The 4% SWR assumes you are getting returns from some combination of stocks and bonds that keeps your portfolio intact despite your spending, while keeping up with inflation. That figure arises out of running simulations of sample portfolios throughout many different periods in history.
If you want to think of it in a greatly simplified way: If you can get
on average 7% returns through a combination of stocks and bonds, and inflation is about 3%
on average (that is, eating up 3 out of the 7% in returns), then your average real return is 4%. With a 4% real return, you could withdraw 4% of your portfolio amount every year to fund your expenses, adjusted up for inflation, and leave your original portfolio amount intact.
Of course, there almost never will bean "average" year -- you might get returns of +18% one year, -30% the next, +3%, -5%, and +10% after that. Overall though, a 7-8% average is a reasonable expectation with a mix of, say, 60/40 in stocks/bonds. Having a significantly down year right after you retire is very bad for your portfolio survival and can really destroy "average" returns over a long period.