[USER]

Is the 4% rule overly conservative?
If you follow the 4% rule, a $1 million principal can grow to over $50 million after 50 years, even with withdrawals!

This suggests we could withdraw 5-7% annually (e.g., $70k instead of $40k for a $1 million investment) and still effectively use our funds.

Using a calculator, I found that if you don’t need the principal at the end of 50 years, you can safely withdraw more than 4% and let the principal fully deplete by the end of your horizon.

The math: $1 million grows to $50 million due to compounding in the 4% rule (assuming 7% average returns and 3% inflation over 50 years).

The goal? There is more room in the 4% rule. lets not die a millionaire, but to make the most of your money while you’re alive!

[Kevin]

My withdraw rate is now like 1.2%. Only need about $75k a year currently.

I guess after a certain point, I’d up that % to improve quality of life further.

[Amy]

How do you figure 1 M grows to 50M? Not in anybody else’s math. By the rule of 72 if you get 8% return in 9 years you will double your money to 2M, in 18 yrs, 4 M, in 36 yrs 8 M in 72 yrs 16M. 50 yrs would probably be around 11 M. But whatever.

I think you should work very hard on getting the first M and then work less on growing it as fast, more on retaining it and just growing slowly from there.

Stock market returns are not guaranteed. As those of us who lost a lot of money in the 2000 Tech Wreck or 2008 recession know well.

And the chances of losing money grow higher as the market grows higher. You know how people say buy low sell high?

Well the first obvious reason people say that is that you get more shares if you buy cheaper and less shares if you pay more. But there is a second reason that people usually don’t consider.

That is that the longer a market is high the more likely it is to fall. If you buy high you are much more likely to lose money in the near future.

It is just economic reality and statistics. Nothing goes up forever, especially stock markets.

If every year the market has been going up, that just makes it that much more likely that next year it will go down.

I got caught up in the whole tech thing in the late 90s and had lost 50% of my portfolio value by 2002.

So, the fact that the S&P is at historical highs and has been going way up fast for the last several years just means it’s time to get conservative as far as I am concerned. But you do you.

Good luck with your investing journey

[David]

It is probably just better to use a calculator to show you, but “sequence of returns” is why 4% is recommended.

It is possible that you retire into a recession or a decade of no returns.

When I put your assumptions into a calculator, a 7% withdraw only works 28% of the time.

[Aaron]

Yes, also called the safe withdrawal rate for a reason. The 4% came from looking back at historical market data and finding out the highest withdrawal rate over 30 year periods that didn’t run out of money.

To solve for the worst 30 year periods means if you get markets better than that then you’ll be left with much more money.

Look up sequence of returns risk. If your $1M portfolio drops to $700k, withdrawing $70k is taking out 10% at that point.

Too many bad years early on and your portfolio won’t recover.

[John]

sub 2.9% is conservative for a FIRE retirement of 40ish years. Your compound interest calculations are crazy optimistic

[Elizabeth]

The 4% withdrawal rate allows for inflation increases to your withdrawals every year. It is not a flat $40k.

Also, you need to test using historical data for your actual asset allocation including a poor sequence of returns (for example if you experienced a significant drop within the first few years).

Returns don’t happen each year at a consistent long term average like that.

Historically speaking a 7% withdrawal rate with inflation increases isn’t likely to last 30 years.

Also, your math is way off on whatever calculation you used to get $50M.

[Kerry]

Sequence of returns and inconsistent rates of returns can have a huge impact.

[Shawn]

You are trying to cover those sequence of returns where certain cohorts have historically run out of money.

It’s important to note that while a small percentage of retirees fail there are also a fairly large group that end up with portfolios that grow substantially, and those could justify higher withdrawal rates if they had the benefit of hindsight.

[Tristan]

Sometimes it isn’t conservative enough. Depends on the sequence of returns

[Kevin]

I plan on using 4% for my base budget save the next 2% then spend half of the rest.

[Cecily]

It isn’t super conservative. Some say it isn’t even conservative enough to cover long stretches of downturn in the market.

But it does account for inflation.

[Alexander]

Sometimes the stock market goes sideways for 10-20 years. And it’s hard to predict. That’s why it’s only 4%

[Kevin]

Ok how is that math working? 1M at 7% annually WITHOUT ANY withdrawal is 29M after 50 years.

How are you getting $50M WITH 4% withdrawal?

[Don]

Depends on the crowd. Over at bogleheads, many aim for 3 or 3.3%
Also, past performance is no guarantee of future performance.

We used to make physical things.

Now we sell ads on social media.

[Author]

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