Trying to understand the 4% rule...

[reese_c_c]

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]

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

I don't think I could do it better than Pete does in his articles...

[TheAnonOne]

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]

Thanks!

[Acastus]

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%.