Author Topic: Trying to understand the 4% rule...  (Read 945 times)

reese_c_c

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Trying to understand the 4% rule...
« on: May 31, 2018, 09:50:17 AM »
When testing the waters of "how much I need to retire", the 4% rule keeps coming into play, however I'm not sure I'm following how this works.

My basic understanding is to take the amount you want to withdraw every year (i.e $30,000) and then divide by 4% = $750,000. Is this telling me that once I have $750,000 of available money invested smartly in the market, I can retire? And is this an "infinite" retirement? Say if I retire at 35 with $750,000 of available money I can never work again until I die?

Just trying to get a little more layman's clarity around this. Thanks

ingrownstudentloans

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TheAnonOne

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Re: Trying to understand the 4% rule...
« Reply #2 on: May 31, 2018, 10:48:14 AM »
When testing the waters of "how much I need to retire", the 4% rule keeps coming into play, however I'm not sure I'm following how this works.

My basic understanding is to take the amount you want to withdraw every year (i.e $30,000) and then divide by 4% = $750,000. Is this telling me that once I have $750,000 of available money invested smartly in the market, I can retire? And is this an "infinite" retirement? Say if I retire at 35 with $750,000 of available money I can never work again until I die?

Just trying to get a little more layman's clarity around this. Thanks

The answer is "basically"

750k should support you for life, in all but 2-4 'starting' years. IE, had you done this and started retirement in 1966 I think you would have gone broke, but that was a very specific case.

The 4% rule, for early retirement is an awesome guideline and even a good rule. The best part about FIRE is that you are young and likely will generate at least some other funds, but even if you don't you have a 96% chance of not going broke.

I hope that helps.

reese_c_c

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Re: Trying to understand the 4% rule...
« Reply #3 on: May 31, 2018, 12:08:24 PM »
Thanks!

Acastus

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Re: Trying to understand the 4% rule...
« Reply #4 on: June 01, 2018, 01:10:51 PM »
Longer withdrawal periods add more risk. The 4% rule worked in the Trinity analysis for a 30 year period. They also modeled longer and shorter periods, and you need to draw a lower % if you want the same chance of success. Or you can draw the same amount at lower chance of success. Based on this, early retirees might consider 3.5 or 3.0%.