So I've always been in the camp that one planning for a sufficiently long retirement should shoot for a 3% SWR. The traditional advice of 4% is based on the assumption of a 65 year-old shooting for a 30 year retirement. (My personal SWR will be a bit wonky, as a lot will be based on rental income, rather than a traditional dividend or total returns portfolio, but in general, I'm supportive of a 3% SWR for a traditional portfolio).

Someone who is ERing thirty years younger will almost certainly need it to last quite a bit longer, and will almost certainly hit stretches of bad returns during that retirement.

MMM posted an article on the 4% SWR being good enough (as there are potential fallbacks / safety layers ), but I'd rather play it a bit safer, and not have to rely on any other income, or expenses not changing, or anything like that.

However, this

*brilliant* article was just posted that argues that a 4% SWR may in fact actually be conservative, because it's based on a

*worst case scenario*. That is, unless we hit the worst that we have, we'll likely be okay with a higher SWR, or 4% should certainly be safe enough. In fact, as the article points out, since the 4% SWR is based on a worst-case type scenario, "the safe withdrawal rate actually has a 96% probability of leaving more than 100% of the original starting principal!" That is, almost all of the time (96 out of 100 times, historically), you will end those 30 years with more money than you started.

Okay, so that helps understand why the current 4% SWR figure feels pretty safe. But what about today? This article puts current "worst return" scenarios that generate that 4% SWR figure into current context (i.e. what would have to happen for the next 15 years for a 4% SWR to not be safe).. So for those bears who think we're in for a new normal of low returns,

*that's okay*, and may even allow for a higher SWR than you're thinking!

Given this reality, it's notable that merely getting 'new normal' returns of low single digits would actually represent not a risk to historical safe withdrawal rates; it would actually be an upside surprise that would result in materially higher lifetime spending!

If you think equities can even return a 1% real return over the next 15 years (i.e. slightly better than flat), then a 4 to 4.5% SWR is fully appropriate!

I immensely enjoyed the whole article, and figure you all might also:

http://www.kitces.com/blog/archives/387-What-Returns-Are-Safe-Withdrawal-Rates-REALLY-Based-Upon.html