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Old 08-23-2017, 03:40 AM
 
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bill bengen was the founder of the 4% rule as it became known . he is the grand pappy of modern day retirement planning methodology .

he recently updated his study and found when using tax advantaged retirement plans a safe withdrawal rate even today can actually be higher at 4.50%

"The "4% rule" is actually the "4.5% rule"- I modified it some years ago on the basis of new research. The 4.5% is the percentage you could "safely" withdraw from a tax-advantaged portfolio (like an IRA, Roth IRA, or 401(k)) the first year of retirement, with the expectation you would live for 30 years in retirement.

After the first year, you "throw away" the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year's inflation rate. Example: $100,000 in an IRA at retirement. First year withdrawal $4,500. Inflation first year is 10%, so second-year withdrawal would be $4,950. Now, on to your specific question. I find that the state of the "economy" had little bearing on safe withdrawal rates. Two things count: if you encounter a major bear market early in retirement, and/or if you experience high inflation during retirement. Both factors drive the safe withdrawal rate down. My research is based on data about investments and inflation going back to 1926. I test the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%!

However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970's, and it takes you down to 4.5%. So far, I have not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%. However, if we were to encounter a decade or more of high inflation, that might change things. In my opinion, inflation is the retiree's worst enemy. As your "time horizon" increases beyond 30 years, as you might expect, the safe withdrawal rate decreases. For example for 35 years, I calculated 4.3%; for 40 years, 4.2%; and for 45 years, 4.1%. I have a chart listing all these in a book I wrote in 2006,. If you plan to live forever, 4% should do it."

https://www.reddit.com/r/financialin...ed_the_4_safe/

Last edited by mathjak107; 08-23-2017 at 03:52 AM..
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Old 08-23-2017, 06:23 AM
 
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and if inflation is the "retiree's worst enemy" that reinforces the fact that stocks should be a significant portion of one's plan!
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Old 08-23-2017, 06:42 AM
 
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it is the worst enemy . even stocks were no match for inflation for those in 1965/1966's group .

inflation killed the entire 30 year time frame right in the first 15 years .
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Old 08-23-2017, 07:15 AM
 
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question---so if 4.5% is safe for a 30 year time frame does that mean a higher % is safe for a 20 year time frame?
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Old 08-23-2017, 07:18 AM
 
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yes . there is a chart i posted many times that gives you the draws as the years change , by success rate . 5% for 20 years has a 94% success rate.

what bengen could not factor in is our own personal tax rates and investment expenses , both have an effect .
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Old 08-23-2017, 07:43 AM
 
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Gotcha. Factoring everything in I'm looking at about 3.7% of initial balance for 2017. Still have 4 months left so will see.
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Old 08-23-2017, 07:46 AM
 
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it is just a way of ball parking day 1. no one spends like a robot .

we use bob clyatt's method based on each years balance and we just set maximum goal posts each year we try not to exceed
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Old 08-23-2017, 07:48 AM
 
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totally....things can change, but so far so good...this whole "not working" lifestyle is just indescribable...whole nother topic ....
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Old 08-23-2017, 08:25 AM
 
Location: SoCal
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I never pay attention to these rules. Good thing, because I just spend what I need. For those who've been carefully about spending less than 4 or 3%, they must be pulling their hair now. Can't get back those years.
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Old 08-23-2017, 08:27 AM
 
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our punch list of things we want to do is so long ,we can easily over spend if we don't plant some kind of goal posts in the ground .
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