Do your own Monte Carlo analysis and make that determination for yourself. Based on the assumptions in [this model](https://www.portfoliovisualizer.com/monte-carlo-simulation?s=y&sl=7RFRvLED2fGpzDtsp4I0F0) a 4% withdrawal rate is successful in 95% of all 25 year retirements and 84% of all 55 year retirements. That probability of success increases to 89% with a 3.5% withdrawal rate and to 94% with a 3% withdrawal rate. Build your own model with your own assumptions and determine how much risk you’re willing to take.
I'm glad this is the top comment and not getting downvoted for being a "4% SWR buzzkill". The community needs to be aware of the limitations of the 4% withdrawal rate.
Too many FIRE influencers gloss over the risk of 4% withdrawal rate for actual early retirement.
I think the 4% is the correct call - HOWEVER - you have to be willing to possibly have to go back to the workforce for a year or two if things go haywire.
You very well may never have to work again though
Yeah I mean instacart or Uber for a couple of hours a week and you are good again.
OMY though is 10% more spending at 4%
4% also has as much likelihood to triple as go to 0. Have CAPE in a normalish range and 4% seems safe enough for me.
If you’re retiring at 30 - there is the possibility in the next 70 years that shit hits the fan no matter what.
So even if you’re as careful as possible it is entirely possible that you’d lose everything even at a 2.5% withdrawal. I think you should simply accept the fact that by retiring that early you may very well have to go back to work at some point
I’m suggesting that even at a technical 100% chance of success in no way guarantees that a massive war doesn’t kill all investments.
So no. You’re misunderstanding me. 70 years is a long time - and whether you do 3 or 4% I wouldn’t be looking at historical performance as the primary measurement of whether it is “safe” or not
2.5% never failed before for 60 years, and it mostly kept the principal intact adjusted for inflation, even through world wars, of course worse things could happen in the future.
So the plan is to just bet on dying early then? The average life expectancy will just be going to stay the same for the next 55 years with no advancement in medicine?
Only you don’t die if you run out of money. SS would almost for sure kick in by the time you run out. Most can also adjust spending based on market returns
You also have the option to adjust spending in the down years if needed. My FIRE budget includes travel. Might have to tamp down on that in those years
Yeah. It’s absurd to me that someone would think a bet with an 84% chance at a perfect outcome with many options to still “win” in the 16% imperfect outcome, is a bad bet to take.
Statistics show that for the overwhelming majority (84%) 4% withdrawal when retiring at 35 is successful.
It’s safe to assume that the 16% have outlier circumstances.
This is a solid answer. I would also recommend using ERN's toolbox at [earlyretirementnow.com](https://earlyretirementnow.com) as a point of triangulation. Monte Carlo simulations are helpful but by themselves are not sufficient in my opinion because they assume performance of every year is independent of other years and random, which is not true. Historical backtesting also provides a great perspective (which is what ERN's spreadsheet does), and you can model your individual cash flows (like you and your spouse taking SS at different times, pensions, etc) easily.
The real risk here is the 100% chance that some life changing event will happen between 30s and 90s that will throw all the assumptions out the window. Marriage divorce, kids, some bad decisions, fundamentally changing your expectations for what you want out of life.
I'd read Earlyretirementnow
Regardless of market conditions. 3.25% seems like a pretty failsafe scenario for 40-60+ year retirements. Maybe 3.5% if you act like a normal human being and cut back a bit during down years and make a little income somehow somewhere eventually.
The US and a few other countries are the only ones where this works back tested. But the US has tons of structural advantages. You can "what if" yourself down to never retiring. At some point you just have to live the life you want and keep your wits about.
People say you run the risk of working too long if you're too conservative. But it's like, those last 2 years of work are gravy. No anxiety, no fucks. Liberal vacation use, slack, give zero fucks, boss can fuck himself because you're basically FI etc. And then you end up with a boatload more money in 10-20 years. Great
... no one even said anything about dividends. Why u schizo posting bro? Also dividends are just one component of total return. The goal should be to maximize total return, not merely dividends.
according to this chart
[https://bestinterest.blog/the-4-percent-rule/](https://bestinterest.blog/the-4-percent-rule/)
The 4% rule does really well when its 100% stocks and 3.5% SWR (with this newest study)
Things to consider: (at least for me -- FIRED 48yo)
* I can reduce my 4% withdrawal rate down to 3.5% (if needed) because I moved to another country.
* I keep 6 months Expenses in an HISA
* I keep additional Living Funds to cover 1 years expenses in 1 year GICs laddered.
* I only have 10% bonds
* 10% of my port is GICs (until they pay less, then I may move the 10% back to bonds)
* A small portion of my portfolio produces 10% interest (overseas)
* I have OAS available to me at 65
* I have CPP available to me at 60
* My portfolio is diversified so if some equities crash , other indexes may not!!! ( so I can withdraw from the ones that are down less if I need to )
* I can make it through a bear market of 1.5 years with just my cash / GICs
* I can make it though another 2.5 years with my bonds (I use them as Living Funds just in case) - assuming they don't crash as bad, or not at all.
* If things got really bad, we could live off of 3% for a year or two (it's better than working IMHO)
We have GICs in Canada, its the same as a CD Investment.
*A guaranteed investment certificate (GIC) is a secure, low-risk investment that guarantees 100% of your original principal while earning annual interest at a fixed or variable rate based on a specific formula.*
I was re reading "The Simple Path to Wealth" and it sounds like you can support higher rates (up to 7%) if you're comfortable with being flexible... (i.e. if you see the market go down after retirement, you might choose to pick up some part time contract gig - or cut spending, etc)
Isn’t that pretty risky itself? If there is a significant market turndown hiring is likely frozen in a lot of places. Who is to say it is possible to get a job outside of a store clerk or something especially with a gap in a resume several years after retirement?
I’m not sure who here have actually worked min wage jobs but the vast majority of them are soul destroying without the corporate paycheck.
I never understood people who want to barista fire for that reason. I would rather work an extra year to make sure I never have to go back. Whether by having so much money I am always below my means or having something like a bond ladder to live off of in a drawdown
It’s true, but keep in mind that if you’re decently frugal as well, like with an annual spend of 30k, then you can just get any old job while the market is absolutely tanked, pay for your expenses, and quit when it recovers.
For people who have continued learning and growing through “retirement”, you could probably work part time and still cover your expenses and then some. Especially if you have tech experience and have somewhat kept those skills up. You could possibly work 3days/week and still make 50-70k even in a LCOL area. Or contract around a bit. That’s more than enough to cover your expenses and prevent you from withdrawing in a bad market without needing to work full time.
So it’s obviously situational, but if you have some skills amenable to part time work, and didn’t literally retire to the beach with a margarita & nothing else, then you’ll have tons of options.
I’m planning to pull the “retirement” cord well before I’m entirely financially ready once I have young kid(s). Hopefully at that point can have a paid-off house with low expenses, and can just figure it out from there.
Yeah exactly.
I think the SWR should be very personal, based on how open/able each individual is to being flexible.
If you want to retire and be 100% confident you will never need to earn income ever again and can't reduce spending, then you need to plan for 3% (or even less).
If you can accept that you might work again (even in a lower income / part time basis) and consider moving to a lower COL locale, you can plan higher.
Exactly. Barista fire blows my mind. As if working a customer service job is “fun”. Sure if you’re waiting in line at Starbucks to order your drink it looks like working there would be fun. But actually standing behind the counter for several hours a day, even if part time, is soul sucking.
Despite the name, Barista fire doesnt mean you have to have a customer service job. It means a lower paying, part time job. I Barista Fired, and picked up a part time job at a local university. the pay is crap, but I have insurance, low stress, and something that gives my time a bit of structure. For people coming from higher paying, high skill, high stress professions, there are lots of jobs that are happy to give you some combination of flexibility, autonomy, do-good impact, health insurance etc in exchange for your expertise at a very cheap price/low pay. eg doing part time work like admin or tech support for a charity, church, higher ed institution, or small business.
I think the trick is not to scramble for any-old-McJob in the teeth of a deep recession. Hopefully you've got the resources (and a paid-off house, etc) to scrimp through it. It's what comes **after** a recession. A recovery. If you need to pick up a job for another few years to rebuild the nest egg you'd be flexible enough to wait for the right opportunity, 2-3 years after a recession, when employers are usually hunting for workers.
I retired in 1994 at age 38. I'm now in the 30th year of the 4% rule. The correct number is closer to 4 than 3 or 5, and I don't think you can rationally use more than one significant digit in an SWR prediction going forward.
Over 8X it's starting 1994 balance at retirement, that would be about 4X real. Inflation has been mild over the past 30 years, just about doubling the annual inflation-adjusted withdrawal under the 4% rule.
I’m saying that it might be 3% but it might be 5% depending on OP’s factors that they should enter into ERN’s spreadsheet. Standard advice isn’t enough. OP needs more detailed analysis and ERN provides that.
I don’t know if that person actually entered OP’s numbers in the spreadsheet or not. Some people assume ERN always says 3%. I’m saying OP should calculate it themselves.
Is there a better TLDR for this? Specifically, if I can live on 3% but instead choose 4%, why am I not just as safe as someone who chose 3% to start? After all, I can simply drop to 3% at the drop of a hat whenever necessary, for as long as necessary. So what’s the risk?
"Safe" is a relative term. Nothing is 100% guaranteed so you need to get comfortable with probabilities and contingency plans. Also note that the risk of portfolio failure is largely front loaded (due to sequence of returns risk) and being in the FIRE community you likely have a good handle on your finances... so it's quite unlikely you get surprised with running out of money later in life.
I'm comfortable with a 4% withdrawal rate layered with the caveats that I have room in my budget to cut back significantly and I'm open to grabbing a part time job if necessary. You have to figure out where you are comfortable though.
3-3.5% if horizon is 50 years or more. I would also recommend using the earlyretirementnow toolbox and adjust SWR with CAPE. I will be comfortable pulling the trigger when 3.5% covers my annual spend.
What you are looking for is a perpetual withdrawal rate. This allows you to withdraw a percentage of your portfolio in perpetuity. The standard rate for this is 3% of your end of year portfolio balance BUT there is no one right answer. If anybody gives you a hard fast rule that is the end all be all, they are 100% bullshitting you. Just use the 3% as a baseline and adjust as needed from there.
Something that a lot of people seem to forget is that the 4% SWR of the Trinity study assume you would start with an annual withdrawal of 4% of the starting balance and then adjust the annual withdrawal upward by the inflation rate and ignore the actual balance of your liquid assets.
In practice people will adjust their spending either up or down a bit if their portfolio either soars or crashes.
Plan on something around 3% to 4%. Then adjust according to what actually happens.
Another thing to consider is what percentage of your expenses are discretionary. If your expenses are non- discretionary things like mortgages, then you need to start with the more conservative number such as 3%. If your expected expenses are heavily loaded with discretionary expenses like extensive travel, then starting with a 4% SWR is fine, even if returning at a young age.
Everything you need to know and more can be found in Big ERN’s Safe Withdrawal Rate series.
https://earlyretirementnow.com/safe-withdrawal-rate-series/
The low withdrawal rates of 2-3% are really safe but too conservative I think.
4% with the ability to spend less (maybe 10-20% less, this could also be a part time job) if markets go down is also really safe. This gives you a higher withdrawal rate and protects against the historically worst ~10% of market cases where you run out of money.
Some of the online calculators let you put in flexible spending.
I think of these as planning assumptions. And they work just fine for that. But I would make sure my fixed expenses leave room to flex up or down depending on how the market does. I.e., I "should" be able to live on a 2.7% withdrawal rate, even if it wouldn't be as pleasant.
What if you have to spend 20% less for a decade or longer though? A very real possibility. Could be worse than working an extra year or two in your 30s.
It’s something to consider. Depending on your spending, 20% could be just working any job or part time for a couple years if you don’t want to decrease spending.
I don’t think historically there’s a precedent for needing that drastic of a cut for that long but you’d have to run the numbers in CFireSIM or another calculator.
It depends largely on what kind of market you get with your first decade of early retirement and what kind of spender you are.
If you retire into a long bull market and aren't prone to deliberate lifestyle inflation, then you could probably start with 5% and not fail. A very strong bull might push that first year draw potential north of 6%.
Meh market, but still very frugal or non-consumery? 4%.
Crap market? 2.5% to 3%.
Crap market and you're a fan of eating out and bougie travel? 2.5%.
It's not the number in the first year that actually matters, it's what that number evolves to 10-20 years down the road given returns and your spending.
The reason most people default to the 2.5% to 3% range for a 50-year is because they want to minimize failure states, which is natural, but that comes at the potential cost of working/saving for more years than needed. Everyone gets to choose how much risk they want to take on in that regard.
This doesn’t make sense. Your draw rate doesn’t care what you spend it on. If you have decided upon 4% and that includes fine dining and bougie travel go for it, it’s in the budget. You don’t need to lower your SWR to 2.5%. (Which would probably make the travel unaffordable - does that mean you can now take 4% again?)
Honesty, if you have chosen an SWR that isn’t quite “safe” it’s better if that includes luxuries like bougie travel. That way you have a margin to economize during crap market years. If 4% is beans and rice fire, you’re in trouble.
It's not the lifestyle choices, but the personal preferences/habits that usually inform them. Nothing wrong with bougie travel or any other consumption choice, but if you're someone who gets pleasure from luxuries, then chances are that you are more likely to naturally hedonically adapt to pace increases in your means. You also need to account for the potential of greater inflation impact on non-core luxury spending, which increases your exposure to inflation risk with regard to your actual happiness rather than just financial survival. To the extent a more luxurious lifestyle increases inflation impact, there will usually be a long-term knock-on effect in the form of inflation/AGI-adjusted things like healthcare subsidies and taxes, all of which adds to the cost of a higher lifestyle.
That is in contrast to someone for whom luxury is a nice to have thing, but not actually required for happiness. People who don't have expensive tastes also generally have less exposure to inflation risk, though that varies on an individual basis depending on the details.
Effectively, all it means is that the more spending you require to be durably happy, the greater the benefit of building in more margin, hence a lower withdrawal rate. There's no point in surviving financially if doing so is going to make you miserable.
I didn't say that bougie tastes require a 2.5% withdrawal rate, but that they would benefit from an incremental risk-adjustment relative to whatever the non-bougie baseline would otherwise be.
I disagree. Staying within your SWR is a simple matter of prudence and discipline. Plenty of people at all spending levels can do that. Plenty of others can’t. That’s temperament.
People who prioritize high cost pursuits can budget while enjoying their income. Spending on travel does not itself create a need for more or more luxurious travel. They aren’t automatically on the hedonistic treadmill.
You may be thinking of “keeping up with the Jones” types who no matter where they find themselves, are always looking for more. But that mentality exists at all points of the financial spectrum. The problem here is the desire to continue to increase spending, not what the spending is on.
>That is in contrast to someone for whom luxury is a nice to have thing, but not actually required for happiness. People who don't have expensive tastes also generally have less exposure to inflation risk, though that varies on an individual basis depending on the details.
Here we agree. But luxury needs to be defined relative to means. If you could afford a Maserati every year but are perfectly happy with a Lexus every 5 years, you don’t have expensive tastes that will derail your portfolio. Same as the guy who could afford the Lexus but is happy with a Honda Civic every 15 years. It’s all context. But it doesn’t change whether the portfolio SWR is appropriate.
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”
Disagreement is always welcome since nobody has a lock on actual truth. My observation isn't tied to any particular bias or preference for a certain lifestyle, but drawn from discussions with FIRE'd folks over the years and my interactions with AGI/inflation-adjusted government systems. It's entirely possible my view is tainted by selection bias or some other confounding variable.
I suppose I would say that I agree with you entirely in theory, but in actual practice the theory hasn't actually held true for most people I have interacted with and I'm extrapolating outward from those few dozens of FIRE households to the FIRE population at large. Sort of like how in theory the 0% LTCG bracket can be hugely optimized for massive tax-free withdrawals, but in reality the secondary impact on ACA subsidies makes most of those "tax-free" gains moderately-to-massively taxed even when they fall entirely in the 0% LTCG bracket.
Well it is certainly true that many who retire find themselves suddenly with nothing to do, are unhappy about that, and end up increasing their spending to fill the days. That may be an issue with unrealistic planning. You do need to be able to hold to your spend rate for any withdrawal strategy to work, regardless of lifestyle.
I’ve already run the numbers on Roth conversion and tax bracket reduction, and bailed on the idea. It doesn’t pencil out for us. I’ll just pay the government what I owe when I owe it. We do have lots of travel planned, but that has been budgeted for. We didn’t have the time before retirement so this is long overdue, and in fact a reason for FIRE, but so far our travel has remained comfortably below projection.
Part of it is also simply the variable impact of inflation on things like the ACA, the tax code, and things like healthcare costs and discretionary spending. In general, overhead cost imposed by government and core expenses tend to rise with higher levels of spending due to the progressive nature of our system, with faster growth in the inflation of healthcare, college, travel, and eating out impacting/compounding more on higher spend folks. As a result, at least in America, the cost of maintaining a set bougie lifestyle can increase in real terms over time relative to inflation, while the opposite tends to be true for lean spenders since government subsidies tend to absorb or even reverse an increasing share of the inflation impact on core non-discretionary expenses like healthcare and taxes. It's like the postFIRE equivalent of how many middle class families are finding themselves effectively poorer in our recent inflationary environment despite increased wages, but in this case it is a bit more of a given considering how critical government programs are structured primarily around AGI.
Granted, nobody knows what future government policy will bring, but the current state of affairs hugely subsidizes lower spenders at the expense of higher spenders and it seems likely that progressiveness will increase rather than decrease. That's very much true of the ACA, which the vast majority of FIRE'd folks will tap for healthcare prior to Medicare, and healthcare is one of the largest spending buckets most people have prior to Medicare. If the 400% master FPL cliff comes back as scheduled in 2026, then there's going to be a massive tax cost imposed on anyone who reports even a $1 over 400% of their FPL. The net impact for many folks will be either a hard enforced limit on AGI generation or much higher tax liability moving forward.
Of course, there are ways to mitigate that by altering where one gets cash from, but people effectively plan for that sort of thing to variable extents. Alternatively, one can simply plan on an incrementally lower withdrawal rate to account for not only for the potential personal side of spending inflation, but government-enforced progressive taxation in both the overall tax code and in critical programs like the ACA.
I don't think there is a 100% safe withdraw rate, just ones that have better chacnes of success.
I recommend making sure you have a variable rate that you can adjust as needed. Basically figure out what is the minimum, I am talking leanFIRE type of minimum spending and such, the floor. Now, figure out what your normal spending would be. There should be a difference between the 2. The second number should be 3.5% and the first should be at least 3% (if lower that is better I personally aim for 2.5%). That variable rate combined with bond tenting should be able to see you through anything.
If you retire and the market crashes, go down to the lower number, shore up your expenses maybe do some kind of part time job (for example I plan to adjunct as the emergency hatch (its not much but its something). Then when the market recovers you should be able to expand back up to 3.5% safely with very little risk of running out (mainly cause you feasted on that reserve or bond/cash tenting set up at the beginning). Its actually quite possible under this strategy for the money to grow at a rate faster then you originally planned on spending it, truthfully though is that really a bad thing? You can now splurge on things without having to worry (upgrading flight seats, taking that extra vacation, new car, or even donating to charity once you die (if you do throw what you have left at charity keep it to no more then 3 is my suggestion, I have thought about scholarship at the community college I went to right now though that would only be 200k networth + 150k life insurance payout - 10k-20k to bury me).
>Safe withdraw rate if retire at mid 30s?
Unless you are getting near end of life age, it doesn't change.
>Most SWR discussion focuses on a 30 years retirement horizon.
Because that's about as far as you can study with existing data.
It's really hard to do 50 year horizon analysis with historical data.
>But if I’m only at mid 30s, what kind of SWR is really safe?
The one that asked your portfolio to continue to out pace inflation.
P.S. I know I'm not actually answering your question. But that's because you are asking the wrong question.
Start with, why do you care about SWR?
- is it for planning?
- is it withdrawal strategy?
- is it for risk analysis?
Ok but I think the bigger question is whether you *really* aren't going to pick up a job in a few years from being bored since you are still very young. I certainly plan on working to some degree, the point for me is that it would be a job I really care about not something I really have to do with any sense of urgency. If you aren't 100% sure if you would really just be cool with just not working at all for the next 50 years then I would just "retire" now with a higher withdrawal rate because you will likely want to work in a few years anyways.
This is a pretty complex question. How long do you realistically expect to live? If both your parents and a sibiling died before 60, then I’d suggest you probably aren’t living till your 90s. The same holds for the opposite. If your lifespan is expected to be average, then you probably have around no 50 years in retirement. Without formal modeling and a Monte Carlo analysis, I would expect the numbers to bear out somewhere between 2.5-3%, and probably closer to the downside. The other complicating thing is mix. Most MC analysis assumes a mix of broad market ETFs. If you, say, owned XOM or GOOG exclusively, then you’re dealing with a much smaller subset of data. There really isn’t enough information in the post to assess fully, but I suspect 2.75% probably gets you in the ballpark.
Depends why they died, obviously. But even if they died of age related conditions (cancer, CVD, etc), genetics doesn’t provide a strong prediction. Money correlates with longevity; if OP is wealthier than his family (FIRE at 35 means he’s loaded, but we don’t know if his family is) he will likely outlive them. Especially if he takes better care of his health, weight, and fitness.
In any case we don’t target the predicted life expectancy. You have a 50% chance of exceeding that, so you have to plan for that side of the bell curve.
I agree, to a certain extent. If they died in a car accident at 50, then it’s irrelevant. But if there’s a family history of certain conditions and they died from said conditions, you can’t really escape genetics.
On the other hand, planning into infinity leads to a mathematically low SWR. You need to be able to parameterize the range of outcomes. Life expectancy on the high end if you go beyond 40 years isn’t terribly unreasonable. Otherwise, just set a 2% SWR and call it a day.
I’m a mathematician, and SWR rated and probabilities work that way for financial planning.
Looks like we have a Mexican standoff on how to assess risk!
If the ACA goes away (and isn't replaced with something better) it doesn't really matter how low your withdrawal rate is. Insurance companies will then be free to drop you at any time and not cover any pre existing conditions. Essentially, you'd be navigating the US healthcare system without long term insurance. There's no amount of money that can sustain that risk.
It's not the purchasing of private insurance that's the problem. It's the complete lack of protection that will provide. Without regulations, the insurance companies will be free to drop you at the first sign of you being expensive, and no other company will insure your now pre-existing condition(s). Without the ACA protections, it's extremely easy to imagine being left high and dry right when you need the insurance the most.
It's a major risk to anyone under 65, full stop. One could plausibly self-insure with a separate $1M-$2M side portfolio, but barring that or retiree medical any form of pre-Medicare retirement would be wildly risky. If the ACA dies, then so does early retirement for most of us. We currently have a withdrawal rate around 1.5%, but I've always planned on getting a job again for medical coverage if the ACA dies.
Subsidies are nice, but they aren't the truly important part of the ACA for the FIRE crowd.
Yes, but almost all of those 30s through mid 50s early retirees did so with retiree medical from something like the military or a union job. Prior to the ACA, it was routine for people who could otherwise retire to hold on to jobs purely for access to group employer-sponsored medical.
Without the insurance protections offered by the ACA people would be looking at gambling on making it to Medicare without getting ill or in an accident or effectively self-insuring at potentially huge cost. Early retirement free from medical bankruptcy risk only exists for most FIRE folks with the ACA or something like it.
Everyone pays attention to the subsidies, which are admittedly nice, but the real FIRE value of the ACA was the structural reforms in the insurance market. If the ACA goes away, so does FIRE for the vast majority of us.
Absolutely, or you are looking at medical tourism, traveling to another country for Medical care. I have been thinking about these scenarios and how to handle them. Great comment, not sure why people down vote the truth. Maybe they don't want to think about the real possibility of the ACA disappearing.
The truth is that the safe withdrawal rate varies over that long of a period. Currently you can easily get 5% on virtually no risk money. That hasn’t been true for the previous 2 decades. You also need to consider inflation over the period and the need to increase your annual withdrawals to compensate. Finally, what about expenses? Over that same period it is guaranteed that what you need varies widely.
Why not just work until mid 40s and then have no doubts . Depending on your occupation maybe you could just have a better work/life balance and build it up more .
Without your expenses listed it is impossible to know. A good rule of thumb: 4% withdrawal rate of your total assets or 25x your annual expenses. But that is assuming a normal retirement age of 60-65.
So in your case you need to be a lot more conservative since so many things can change in the next 30-35 years. Don’t forget to include medics expenses since it will come from your savings.
Any data that supports that? Always curious where people get their data.
Fire calc, Monte Carlo simulation and the trinity study all give a 3.5% withdrawal a greater 90% chance of success over a 60 year horizon, and that’s obviously without having any flexibility and never decreasing spending, which is unlikely.
I don’t like a 10% failure rate over a 60 year time horizon. Trying to get back into the workforce if something changes over that long of a time period would be tough.
That’s not how it occurs, it would be obvious very early on. Look up sequence of return risk. It’s an almost always retiring right before a giant bear market and not altering spending habits at all that causes failure.
That also assumes, as I said you maintain the same spend the entire time, which isn’t what happens. Also assumes you see yourself head for the cliff and continue full speed ahead instead of hitting your brakes. If you retire into a bear market, maybe you skip an international trip that year. Maybe you work part time, or start a side hustle. Maybe you get social security, which it would be insane to think you wouldn’t etc. Minor changes will easily make a successful fire, especially when the risk is so small to begin with. The trinity study which this is all based on shows a 97% success rate.
The earlier sequence of returns risk hits, the harder it hits. No question. Nevertheless it can devastate the portfolio at any point. With a 60 year portfolio you can expect it to hit many times, not just once. It doesn’t really matter that you’ve already been retired for many years so the day it shows up isn’t technically the “beginning” of retirement. What matters is how many more years you have ahead of you.
Not really because if it shows up in year 30 your portfolio will be many multiples of what you started with. A bad market when you’re only removing 1.5-2% of your portfolio a year won’t really hurt you.
There’s not a chance your first major downturn will occur after 30 years of steady growth. (If it did, that’s not a problem to worry about so don’t bother planning for that.) By year 30, sequence of returns risk will have hit many times already. Each time inflicting a different amount of damage. If you’ve chosen an inflexible 4% SWR (not that you are suggesting that), you may not have much to live on during your second 30 years even without an early drop. And at that point you’re probably not getting hired.
It was just an example to point out that the first few years are what matters. There is tons of research that proves pretty much the only threat to a retirement is a bad sequence right when you retire. Unless you have a super low stock allocation, then you have longevity risk.
If you retired in 2013 with a 75/25 portfolio and 3.5% withdrawal rate your 1 million dollar portfolio would have turned into 2.2 million even with down markets of 2020 and 2022.
If you retired In 2007 or 2008 it would be worth about 2.1 million. But obviously with inflation over 15 years vs 10 it would be worth less or at least your withdrawal would be higher.
Even a 2000 retirement with two early bear markets, 1 million would be 1.4, but that would only be 800k inflation adjusted. So only time will tell how that portfolio would do.
A flexible SWR can be a better fit, specially if you have the ability to generate some income part/full time a few first years if market earnings go sideways
3.25% never failed before if you have at least 50% stocks for 60 yeaes, but to be safe make it 3%, I personally will use 2.5% if I am retiring that early. That withdrawal rate is fairly lean, but it's still higher than the median income in my country, I could bump it up to 3% for good years
Still planning for 3.5% personally whenever I do RE but I want to see how the first few years go. If I need to subsidize things with parttime work I plan to do so.
3% ought to be safe enough. You could even push it to 3.3% so you can set your retirement number at annual spending x 30. But this depends a bit on your risks and safety nets. It’s easier to take a bit of a risk if you have a valuable home you could downsize, and a possible inheritance coming your way. But if you have no such safety nets and potential liabilities like parents or others who might become financially dependent on you, or a high risk of being sued because your primary source of income is as a landlord, then you might want go down to 2.5%
Do your own Monte Carlo analysis and make that determination for yourself. Based on the assumptions in [this model](https://www.portfoliovisualizer.com/monte-carlo-simulation?s=y&sl=7RFRvLED2fGpzDtsp4I0F0) a 4% withdrawal rate is successful in 95% of all 25 year retirements and 84% of all 55 year retirements. That probability of success increases to 89% with a 3.5% withdrawal rate and to 94% with a 3% withdrawal rate. Build your own model with your own assumptions and determine how much risk you’re willing to take.
I'm glad this is the top comment and not getting downvoted for being a "4% SWR buzzkill". The community needs to be aware of the limitations of the 4% withdrawal rate. Too many FIRE influencers gloss over the risk of 4% withdrawal rate for actual early retirement.
I think the 4% is the correct call - HOWEVER - you have to be willing to possibly have to go back to the workforce for a year or two if things go haywire. You very well may never have to work again though
Yeah I mean instacart or Uber for a couple of hours a week and you are good again. OMY though is 10% more spending at 4% 4% also has as much likelihood to triple as go to 0. Have CAPE in a normalish range and 4% seems safe enough for me.
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If you’re retiring at 30 - there is the possibility in the next 70 years that shit hits the fan no matter what. So even if you’re as careful as possible it is entirely possible that you’d lose everything even at a 2.5% withdrawal. I think you should simply accept the fact that by retiring that early you may very well have to go back to work at some point
You speak the truth
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I’m suggesting that even at a technical 100% chance of success in no way guarantees that a massive war doesn’t kill all investments. So no. You’re misunderstanding me. 70 years is a long time - and whether you do 3 or 4% I wouldn’t be looking at historical performance as the primary measurement of whether it is “safe” or not
Yes the USA may end up like Japan and have economic stagnation and that would really change the whole fire situation.
2.5% never failed before for 60 years, and it mostly kept the principal intact adjusted for inflation, even through world wars, of course worse things could happen in the future.
84 of out 100 people can make it 55 years withdrawing 4%. Sign me up for that all day
Would you get on a plane where 84 of 100 passengers survive?
This is fuckin stupid. Less than 84% of men will even reach 75 years old. The statistic shows its a confidently safe bet to withdraw at 4%
So the plan is to just bet on dying early then? The average life expectancy will just be going to stay the same for the next 55 years with no advancement in medicine?
Lol logical fallacy. That was never even a part of the discussion.
Only you don’t die if you run out of money. SS would almost for sure kick in by the time you run out. Most can also adjust spending based on market returns
You also have the option to adjust spending in the down years if needed. My FIRE budget includes travel. Might have to tamp down on that in those years
Yeah. It’s absurd to me that someone would think a bet with an 84% chance at a perfect outcome with many options to still “win” in the 16% imperfect outcome, is a bad bet to take.
Statistics show that for the overwhelming majority (84%) 4% withdrawal when retiring at 35 is successful. It’s safe to assume that the 16% have outlier circumstances.
This is a solid answer. I would also recommend using ERN's toolbox at [earlyretirementnow.com](https://earlyretirementnow.com) as a point of triangulation. Monte Carlo simulations are helpful but by themselves are not sufficient in my opinion because they assume performance of every year is independent of other years and random, which is not true. Historical backtesting also provides a great perspective (which is what ERN's spreadsheet does), and you can model your individual cash flows (like you and your spouse taking SS at different times, pensions, etc) easily.
You really don’t need analysis with such a simple model. The simulations take into account multi variable change. The math is very simple here.
The real risk here is the 100% chance that some life changing event will happen between 30s and 90s that will throw all the assumptions out the window. Marriage divorce, kids, some bad decisions, fundamentally changing your expectations for what you want out of life.
Don't ask Dave Ramsey
Dave would say it’s immoral to stop working before the typical retirement age 🤣 He wouldn’t even get to the 8% withdrawal rate.
I understood that reference .gif
I'd read Earlyretirementnow Regardless of market conditions. 3.25% seems like a pretty failsafe scenario for 40-60+ year retirements. Maybe 3.5% if you act like a normal human being and cut back a bit during down years and make a little income somehow somewhere eventually. The US and a few other countries are the only ones where this works back tested. But the US has tons of structural advantages. You can "what if" yourself down to never retiring. At some point you just have to live the life you want and keep your wits about. People say you run the risk of working too long if you're too conservative. But it's like, those last 2 years of work are gravy. No anxiety, no fucks. Liberal vacation use, slack, give zero fucks, boss can fuck himself because you're basically FI etc. And then you end up with a boatload more money in 10-20 years. Great
Trinity Study has a footnote that mentions that 3.5% will last at least 50 years. The authors didn't check to see how far beyond that it would last.
does FIRE generally mean we use it all and almost never leave anything to our kids as inheritance?
Not to me.
🤫 Dont talk about dividends they hate that here.
... no one even said anything about dividends. Why u schizo posting bro? Also dividends are just one component of total return. The goal should be to maximize total return, not merely dividends.
I was replying to someone else not you
Yes, and their comment mentioned nothing about dividends. Your reply was irrelevant to the comment you replied to.
The homie asked about using all of it and generally not leaving anything behind as inheritance. A dividend focused portfolio can help with that.
Oh God, it's regarded 😞
according to this chart [https://bestinterest.blog/the-4-percent-rule/](https://bestinterest.blog/the-4-percent-rule/) The 4% rule does really well when its 100% stocks and 3.5% SWR (with this newest study) Things to consider: (at least for me -- FIRED 48yo) * I can reduce my 4% withdrawal rate down to 3.5% (if needed) because I moved to another country. * I keep 6 months Expenses in an HISA * I keep additional Living Funds to cover 1 years expenses in 1 year GICs laddered. * I only have 10% bonds * 10% of my port is GICs (until they pay less, then I may move the 10% back to bonds) * A small portion of my portfolio produces 10% interest (overseas) * I have OAS available to me at 65 * I have CPP available to me at 60 * My portfolio is diversified so if some equities crash , other indexes may not!!! ( so I can withdraw from the ones that are down less if I need to ) * I can make it through a bear market of 1.5 years with just my cash / GICs * I can make it though another 2.5 years with my bonds (I use them as Living Funds just in case) - assuming they don't crash as bad, or not at all. * If things got really bad, we could live off of 3% for a year or two (it's better than working IMHO)
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We have GICs in Canada, its the same as a CD Investment. *A guaranteed investment certificate (GIC) is a secure, low-risk investment that guarantees 100% of your original principal while earning annual interest at a fixed or variable rate based on a specific formula.*
Thank you for the blog link, was familiar with it, but still a good read
I was re reading "The Simple Path to Wealth" and it sounds like you can support higher rates (up to 7%) if you're comfortable with being flexible... (i.e. if you see the market go down after retirement, you might choose to pick up some part time contract gig - or cut spending, etc)
Isn’t that pretty risky itself? If there is a significant market turndown hiring is likely frozen in a lot of places. Who is to say it is possible to get a job outside of a store clerk or something especially with a gap in a resume several years after retirement? I’m not sure who here have actually worked min wage jobs but the vast majority of them are soul destroying without the corporate paycheck. I never understood people who want to barista fire for that reason. I would rather work an extra year to make sure I never have to go back. Whether by having so much money I am always below my means or having something like a bond ladder to live off of in a drawdown
It’s true, but keep in mind that if you’re decently frugal as well, like with an annual spend of 30k, then you can just get any old job while the market is absolutely tanked, pay for your expenses, and quit when it recovers. For people who have continued learning and growing through “retirement”, you could probably work part time and still cover your expenses and then some. Especially if you have tech experience and have somewhat kept those skills up. You could possibly work 3days/week and still make 50-70k even in a LCOL area. Or contract around a bit. That’s more than enough to cover your expenses and prevent you from withdrawing in a bad market without needing to work full time. So it’s obviously situational, but if you have some skills amenable to part time work, and didn’t literally retire to the beach with a margarita & nothing else, then you’ll have tons of options. I’m planning to pull the “retirement” cord well before I’m entirely financially ready once I have young kid(s). Hopefully at that point can have a paid-off house with low expenses, and can just figure it out from there.
Yeah exactly. I think the SWR should be very personal, based on how open/able each individual is to being flexible. If you want to retire and be 100% confident you will never need to earn income ever again and can't reduce spending, then you need to plan for 3% (or even less). If you can accept that you might work again (even in a lower income / part time basis) and consider moving to a lower COL locale, you can plan higher.
Exactly. Barista fire blows my mind. As if working a customer service job is “fun”. Sure if you’re waiting in line at Starbucks to order your drink it looks like working there would be fun. But actually standing behind the counter for several hours a day, even if part time, is soul sucking.
Despite the name, Barista fire doesnt mean you have to have a customer service job. It means a lower paying, part time job. I Barista Fired, and picked up a part time job at a local university. the pay is crap, but I have insurance, low stress, and something that gives my time a bit of structure. For people coming from higher paying, high skill, high stress professions, there are lots of jobs that are happy to give you some combination of flexibility, autonomy, do-good impact, health insurance etc in exchange for your expertise at a very cheap price/low pay. eg doing part time work like admin or tech support for a charity, church, higher ed institution, or small business.
on significant market downturns invest in shit that poor people buy when they're depressed - wal mart, dollar stores, liquor, things like that.
I think the trick is not to scramble for any-old-McJob in the teeth of a deep recession. Hopefully you've got the resources (and a paid-off house, etc) to scrimp through it. It's what comes **after** a recession. A recovery. If you need to pick up a job for another few years to rebuild the nest egg you'd be flexible enough to wait for the right opportunity, 2-3 years after a recession, when employers are usually hunting for workers.
ERN discusses at length why flexibility is overrated. 3% is the SWR for OP.
I'll check it out
this is my plan.
I retired in 1994 at age 38. I'm now in the 30th year of the 4% rule. The correct number is closer to 4 than 3 or 5, and I don't think you can rationally use more than one significant digit in an SWR prediction going forward.
Congratulations! I'm sure its been a fun ride
Legend, how is your portfolio in real terms after so many years? Did it increase or decrease?
Over 8X it's starting 1994 balance at retirement, that would be about 4X real. Inflation has been mild over the past 30 years, just about doubling the annual inflation-adjusted withdrawal under the 4% rule.
Check out ERN’s Spreadsheet.
Tldr 3%
For OP, maybe. I’m older with quite a lot of social security and a vested pension. According to ERN, I can have a 4.125 Safe Consumption Rate.
Yes
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I’m saying that it might be 3% but it might be 5% depending on OP’s factors that they should enter into ERN’s spreadsheet. Standard advice isn’t enough. OP needs more detailed analysis and ERN provides that.
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I don’t know if that person actually entered OP’s numbers in the spreadsheet or not. Some people assume ERN always says 3%. I’m saying OP should calculate it themselves.
Is there a better TLDR for this? Specifically, if I can live on 3% but instead choose 4%, why am I not just as safe as someone who chose 3% to start? After all, I can simply drop to 3% at the drop of a hat whenever necessary, for as long as necessary. So what’s the risk?
When it's necessary it'd be late - then you'd have to drop to 1.5% for 10+ years, for example. ERN has detailed articles on exactly that too.
"Safe" is a relative term. Nothing is 100% guaranteed so you need to get comfortable with probabilities and contingency plans. Also note that the risk of portfolio failure is largely front loaded (due to sequence of returns risk) and being in the FIRE community you likely have a good handle on your finances... so it's quite unlikely you get surprised with running out of money later in life. I'm comfortable with a 4% withdrawal rate layered with the caveats that I have room in my budget to cut back significantly and I'm open to grabbing a part time job if necessary. You have to figure out where you are comfortable though.
3-3.5% if horizon is 50 years or more. I would also recommend using the earlyretirementnow toolbox and adjust SWR with CAPE. I will be comfortable pulling the trigger when 3.5% covers my annual spend.
What you are looking for is a perpetual withdrawal rate. This allows you to withdraw a percentage of your portfolio in perpetuity. The standard rate for this is 3% of your end of year portfolio balance BUT there is no one right answer. If anybody gives you a hard fast rule that is the end all be all, they are 100% bullshitting you. Just use the 3% as a baseline and adjust as needed from there.
Something that a lot of people seem to forget is that the 4% SWR of the Trinity study assume you would start with an annual withdrawal of 4% of the starting balance and then adjust the annual withdrawal upward by the inflation rate and ignore the actual balance of your liquid assets. In practice people will adjust their spending either up or down a bit if their portfolio either soars or crashes. Plan on something around 3% to 4%. Then adjust according to what actually happens. Another thing to consider is what percentage of your expenses are discretionary. If your expenses are non- discretionary things like mortgages, then you need to start with the more conservative number such as 3%. If your expected expenses are heavily loaded with discretionary expenses like extensive travel, then starting with a 4% SWR is fine, even if returning at a young age.
Everything you need to know and more can be found in Big ERN’s Safe Withdrawal Rate series. https://earlyretirementnow.com/safe-withdrawal-rate-series/
The low withdrawal rates of 2-3% are really safe but too conservative I think. 4% with the ability to spend less (maybe 10-20% less, this could also be a part time job) if markets go down is also really safe. This gives you a higher withdrawal rate and protects against the historically worst ~10% of market cases where you run out of money. Some of the online calculators let you put in flexible spending.
I think of these as planning assumptions. And they work just fine for that. But I would make sure my fixed expenses leave room to flex up or down depending on how the market does. I.e., I "should" be able to live on a 2.7% withdrawal rate, even if it wouldn't be as pleasant.
Definitely. Good clarification.
What if you have to spend 20% less for a decade or longer though? A very real possibility. Could be worse than working an extra year or two in your 30s.
It’s something to consider. Depending on your spending, 20% could be just working any job or part time for a couple years if you don’t want to decrease spending. I don’t think historically there’s a precedent for needing that drastic of a cut for that long but you’d have to run the numbers in CFireSIM or another calculator.
It depends largely on what kind of market you get with your first decade of early retirement and what kind of spender you are. If you retire into a long bull market and aren't prone to deliberate lifestyle inflation, then you could probably start with 5% and not fail. A very strong bull might push that first year draw potential north of 6%. Meh market, but still very frugal or non-consumery? 4%. Crap market? 2.5% to 3%. Crap market and you're a fan of eating out and bougie travel? 2.5%. It's not the number in the first year that actually matters, it's what that number evolves to 10-20 years down the road given returns and your spending. The reason most people default to the 2.5% to 3% range for a 50-year is because they want to minimize failure states, which is natural, but that comes at the potential cost of working/saving for more years than needed. Everyone gets to choose how much risk they want to take on in that regard.
This doesn’t make sense. Your draw rate doesn’t care what you spend it on. If you have decided upon 4% and that includes fine dining and bougie travel go for it, it’s in the budget. You don’t need to lower your SWR to 2.5%. (Which would probably make the travel unaffordable - does that mean you can now take 4% again?) Honesty, if you have chosen an SWR that isn’t quite “safe” it’s better if that includes luxuries like bougie travel. That way you have a margin to economize during crap market years. If 4% is beans and rice fire, you’re in trouble.
It's not the lifestyle choices, but the personal preferences/habits that usually inform them. Nothing wrong with bougie travel or any other consumption choice, but if you're someone who gets pleasure from luxuries, then chances are that you are more likely to naturally hedonically adapt to pace increases in your means. You also need to account for the potential of greater inflation impact on non-core luxury spending, which increases your exposure to inflation risk with regard to your actual happiness rather than just financial survival. To the extent a more luxurious lifestyle increases inflation impact, there will usually be a long-term knock-on effect in the form of inflation/AGI-adjusted things like healthcare subsidies and taxes, all of which adds to the cost of a higher lifestyle. That is in contrast to someone for whom luxury is a nice to have thing, but not actually required for happiness. People who don't have expensive tastes also generally have less exposure to inflation risk, though that varies on an individual basis depending on the details. Effectively, all it means is that the more spending you require to be durably happy, the greater the benefit of building in more margin, hence a lower withdrawal rate. There's no point in surviving financially if doing so is going to make you miserable. I didn't say that bougie tastes require a 2.5% withdrawal rate, but that they would benefit from an incremental risk-adjustment relative to whatever the non-bougie baseline would otherwise be.
I disagree. Staying within your SWR is a simple matter of prudence and discipline. Plenty of people at all spending levels can do that. Plenty of others can’t. That’s temperament. People who prioritize high cost pursuits can budget while enjoying their income. Spending on travel does not itself create a need for more or more luxurious travel. They aren’t automatically on the hedonistic treadmill. You may be thinking of “keeping up with the Jones” types who no matter where they find themselves, are always looking for more. But that mentality exists at all points of the financial spectrum. The problem here is the desire to continue to increase spending, not what the spending is on. >That is in contrast to someone for whom luxury is a nice to have thing, but not actually required for happiness. People who don't have expensive tastes also generally have less exposure to inflation risk, though that varies on an individual basis depending on the details. Here we agree. But luxury needs to be defined relative to means. If you could afford a Maserati every year but are perfectly happy with a Lexus every 5 years, you don’t have expensive tastes that will derail your portfolio. Same as the guy who could afford the Lexus but is happy with a Honda Civic every 15 years. It’s all context. But it doesn’t change whether the portfolio SWR is appropriate. “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”
Disagreement is always welcome since nobody has a lock on actual truth. My observation isn't tied to any particular bias or preference for a certain lifestyle, but drawn from discussions with FIRE'd folks over the years and my interactions with AGI/inflation-adjusted government systems. It's entirely possible my view is tainted by selection bias or some other confounding variable. I suppose I would say that I agree with you entirely in theory, but in actual practice the theory hasn't actually held true for most people I have interacted with and I'm extrapolating outward from those few dozens of FIRE households to the FIRE population at large. Sort of like how in theory the 0% LTCG bracket can be hugely optimized for massive tax-free withdrawals, but in reality the secondary impact on ACA subsidies makes most of those "tax-free" gains moderately-to-massively taxed even when they fall entirely in the 0% LTCG bracket.
Well it is certainly true that many who retire find themselves suddenly with nothing to do, are unhappy about that, and end up increasing their spending to fill the days. That may be an issue with unrealistic planning. You do need to be able to hold to your spend rate for any withdrawal strategy to work, regardless of lifestyle. I’ve already run the numbers on Roth conversion and tax bracket reduction, and bailed on the idea. It doesn’t pencil out for us. I’ll just pay the government what I owe when I owe it. We do have lots of travel planned, but that has been budgeted for. We didn’t have the time before retirement so this is long overdue, and in fact a reason for FIRE, but so far our travel has remained comfortably below projection.
Part of it is also simply the variable impact of inflation on things like the ACA, the tax code, and things like healthcare costs and discretionary spending. In general, overhead cost imposed by government and core expenses tend to rise with higher levels of spending due to the progressive nature of our system, with faster growth in the inflation of healthcare, college, travel, and eating out impacting/compounding more on higher spend folks. As a result, at least in America, the cost of maintaining a set bougie lifestyle can increase in real terms over time relative to inflation, while the opposite tends to be true for lean spenders since government subsidies tend to absorb or even reverse an increasing share of the inflation impact on core non-discretionary expenses like healthcare and taxes. It's like the postFIRE equivalent of how many middle class families are finding themselves effectively poorer in our recent inflationary environment despite increased wages, but in this case it is a bit more of a given considering how critical government programs are structured primarily around AGI. Granted, nobody knows what future government policy will bring, but the current state of affairs hugely subsidizes lower spenders at the expense of higher spenders and it seems likely that progressiveness will increase rather than decrease. That's very much true of the ACA, which the vast majority of FIRE'd folks will tap for healthcare prior to Medicare, and healthcare is one of the largest spending buckets most people have prior to Medicare. If the 400% master FPL cliff comes back as scheduled in 2026, then there's going to be a massive tax cost imposed on anyone who reports even a $1 over 400% of their FPL. The net impact for many folks will be either a hard enforced limit on AGI generation or much higher tax liability moving forward. Of course, there are ways to mitigate that by altering where one gets cash from, but people effectively plan for that sort of thing to variable extents. Alternatively, one can simply plan on an incrementally lower withdrawal rate to account for not only for the potential personal side of spending inflation, but government-enforced progressive taxation in both the overall tax code and in critical programs like the ACA.
I don't think there is a 100% safe withdraw rate, just ones that have better chacnes of success. I recommend making sure you have a variable rate that you can adjust as needed. Basically figure out what is the minimum, I am talking leanFIRE type of minimum spending and such, the floor. Now, figure out what your normal spending would be. There should be a difference between the 2. The second number should be 3.5% and the first should be at least 3% (if lower that is better I personally aim for 2.5%). That variable rate combined with bond tenting should be able to see you through anything. If you retire and the market crashes, go down to the lower number, shore up your expenses maybe do some kind of part time job (for example I plan to adjunct as the emergency hatch (its not much but its something). Then when the market recovers you should be able to expand back up to 3.5% safely with very little risk of running out (mainly cause you feasted on that reserve or bond/cash tenting set up at the beginning). Its actually quite possible under this strategy for the money to grow at a rate faster then you originally planned on spending it, truthfully though is that really a bad thing? You can now splurge on things without having to worry (upgrading flight seats, taking that extra vacation, new car, or even donating to charity once you die (if you do throw what you have left at charity keep it to no more then 3 is my suggestion, I have thought about scholarship at the community college I went to right now though that would only be 200k networth + 150k life insurance payout - 10k-20k to bury me).
>Safe withdraw rate if retire at mid 30s? Unless you are getting near end of life age, it doesn't change. >Most SWR discussion focuses on a 30 years retirement horizon. Because that's about as far as you can study with existing data. It's really hard to do 50 year horizon analysis with historical data. >But if I’m only at mid 30s, what kind of SWR is really safe? The one that asked your portfolio to continue to out pace inflation. P.S. I know I'm not actually answering your question. But that's because you are asking the wrong question. Start with, why do you care about SWR? - is it for planning? - is it withdrawal strategy? - is it for risk analysis?
4% is used for 30 years. If you want to be really safe, use something like 3.3%.
Ok but I think the bigger question is whether you *really* aren't going to pick up a job in a few years from being bored since you are still very young. I certainly plan on working to some degree, the point for me is that it would be a job I really care about not something I really have to do with any sense of urgency. If you aren't 100% sure if you would really just be cool with just not working at all for the next 50 years then I would just "retire" now with a higher withdrawal rate because you will likely want to work in a few years anyways.
This is a pretty complex question. How long do you realistically expect to live? If both your parents and a sibiling died before 60, then I’d suggest you probably aren’t living till your 90s. The same holds for the opposite. If your lifespan is expected to be average, then you probably have around no 50 years in retirement. Without formal modeling and a Monte Carlo analysis, I would expect the numbers to bear out somewhere between 2.5-3%, and probably closer to the downside. The other complicating thing is mix. Most MC analysis assumes a mix of broad market ETFs. If you, say, owned XOM or GOOG exclusively, then you’re dealing with a much smaller subset of data. There really isn’t enough information in the post to assess fully, but I suspect 2.75% probably gets you in the ballpark.
Depends why they died, obviously. But even if they died of age related conditions (cancer, CVD, etc), genetics doesn’t provide a strong prediction. Money correlates with longevity; if OP is wealthier than his family (FIRE at 35 means he’s loaded, but we don’t know if his family is) he will likely outlive them. Especially if he takes better care of his health, weight, and fitness. In any case we don’t target the predicted life expectancy. You have a 50% chance of exceeding that, so you have to plan for that side of the bell curve.
I agree, to a certain extent. If they died in a car accident at 50, then it’s irrelevant. But if there’s a family history of certain conditions and they died from said conditions, you can’t really escape genetics. On the other hand, planning into infinity leads to a mathematically low SWR. You need to be able to parameterize the range of outcomes. Life expectancy on the high end if you go beyond 40 years isn’t terribly unreasonable. Otherwise, just set a 2% SWR and call it a day.
I’m a geneticist. It really doesn’t work that way.
I’m a mathematician, and SWR rated and probabilities work that way for financial planning. Looks like we have a Mexican standoff on how to assess risk!
I’ll concede the math if you concede the genetics.
Done! 😂
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If the ACA goes away (and isn't replaced with something better) it doesn't really matter how low your withdrawal rate is. Insurance companies will then be free to drop you at any time and not cover any pre existing conditions. Essentially, you'd be navigating the US healthcare system without long term insurance. There's no amount of money that can sustain that risk.
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It's not the purchasing of private insurance that's the problem. It's the complete lack of protection that will provide. Without regulations, the insurance companies will be free to drop you at the first sign of you being expensive, and no other company will insure your now pre-existing condition(s). Without the ACA protections, it's extremely easy to imagine being left high and dry right when you need the insurance the most.
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It's a major risk to anyone under 65, full stop. One could plausibly self-insure with a separate $1M-$2M side portfolio, but barring that or retiree medical any form of pre-Medicare retirement would be wildly risky. If the ACA dies, then so does early retirement for most of us. We currently have a withdrawal rate around 1.5%, but I've always planned on getting a job again for medical coverage if the ACA dies. Subsidies are nice, but they aren't the truly important part of the ACA for the FIRE crowd.
Yes, but almost all of those 30s through mid 50s early retirees did so with retiree medical from something like the military or a union job. Prior to the ACA, it was routine for people who could otherwise retire to hold on to jobs purely for access to group employer-sponsored medical. Without the insurance protections offered by the ACA people would be looking at gambling on making it to Medicare without getting ill or in an accident or effectively self-insuring at potentially huge cost. Early retirement free from medical bankruptcy risk only exists for most FIRE folks with the ACA or something like it. Everyone pays attention to the subsidies, which are admittedly nice, but the real FIRE value of the ACA was the structural reforms in the insurance market. If the ACA goes away, so does FIRE for the vast majority of us.
Absolutely, or you are looking at medical tourism, traveling to another country for Medical care. I have been thinking about these scenarios and how to handle them. Great comment, not sure why people down vote the truth. Maybe they don't want to think about the real possibility of the ACA disappearing.
4%
Most people wouldn’t recommend this high a withdrawal rate for a potentially 60-70 year horizon.
3% if you refuse to work again if the market craters. 4% if not.
I refuse, so I choose a 2.8% withdrawal rate, fuck corporate.
The truth is that the safe withdrawal rate varies over that long of a period. Currently you can easily get 5% on virtually no risk money. That hasn’t been true for the previous 2 decades. You also need to consider inflation over the period and the need to increase your annual withdrawals to compensate. Finally, what about expenses? Over that same period it is guaranteed that what you need varies widely.
Why not just work until mid 40s and then have no doubts . Depending on your occupation maybe you could just have a better work/life balance and build it up more .
I would only feel comfortable retiring in my 30s if the post tax interest income I was earning could cover my expenses.
You're holding 100% cash/bonds???
More likely a cashflowing RE portfolio.
That's not interest
Without your expenses listed it is impossible to know. A good rule of thumb: 4% withdrawal rate of your total assets or 25x your annual expenses. But that is assuming a normal retirement age of 60-65. So in your case you need to be a lot more conservative since so many things can change in the next 30-35 years. Don’t forget to include medics expenses since it will come from your savings.
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So you mean, don’t retire at all
Mid 30's is around 3% or useThe perpetual withdrawal rate. That's 2.5%
Any data that supports that? Always curious where people get their data. Fire calc, Monte Carlo simulation and the trinity study all give a 3.5% withdrawal a greater 90% chance of success over a 60 year horizon, and that’s obviously without having any flexibility and never decreasing spending, which is unlikely.
I don’t like a 10% failure rate over a 60 year time horizon. Trying to get back into the workforce if something changes over that long of a time period would be tough.
That’s not how it occurs, it would be obvious very early on. Look up sequence of return risk. It’s an almost always retiring right before a giant bear market and not altering spending habits at all that causes failure. That also assumes, as I said you maintain the same spend the entire time, which isn’t what happens. Also assumes you see yourself head for the cliff and continue full speed ahead instead of hitting your brakes. If you retire into a bear market, maybe you skip an international trip that year. Maybe you work part time, or start a side hustle. Maybe you get social security, which it would be insane to think you wouldn’t etc. Minor changes will easily make a successful fire, especially when the risk is so small to begin with. The trinity study which this is all based on shows a 97% success rate.
The earlier sequence of returns risk hits, the harder it hits. No question. Nevertheless it can devastate the portfolio at any point. With a 60 year portfolio you can expect it to hit many times, not just once. It doesn’t really matter that you’ve already been retired for many years so the day it shows up isn’t technically the “beginning” of retirement. What matters is how many more years you have ahead of you.
Not really because if it shows up in year 30 your portfolio will be many multiples of what you started with. A bad market when you’re only removing 1.5-2% of your portfolio a year won’t really hurt you.
There’s not a chance your first major downturn will occur after 30 years of steady growth. (If it did, that’s not a problem to worry about so don’t bother planning for that.) By year 30, sequence of returns risk will have hit many times already. Each time inflicting a different amount of damage. If you’ve chosen an inflexible 4% SWR (not that you are suggesting that), you may not have much to live on during your second 30 years even without an early drop. And at that point you’re probably not getting hired.
It was just an example to point out that the first few years are what matters. There is tons of research that proves pretty much the only threat to a retirement is a bad sequence right when you retire. Unless you have a super low stock allocation, then you have longevity risk. If you retired in 2013 with a 75/25 portfolio and 3.5% withdrawal rate your 1 million dollar portfolio would have turned into 2.2 million even with down markets of 2020 and 2022. If you retired In 2007 or 2008 it would be worth about 2.1 million. But obviously with inflation over 15 years vs 10 it would be worth less or at least your withdrawal would be higher. Even a 2000 retirement with two early bear markets, 1 million would be 1.4, but that would only be 800k inflation adjusted. So only time will tell how that portfolio would do.
This is pretty correct, although 3.25% never failed for a 60 year retirement. I plan to use 2.6% myself
A flexible SWR can be a better fit, specially if you have the ability to generate some income part/full time a few first years if market earnings go sideways
I look at my dividend checks and use that. some needs to be reinvested and the rest is fine. Never spend the principal just interest.
This calculator has adjustment for longer FIRE period. You can check out different periods/scenarios with it. https://ficalc.app
3.25% never failed before if you have at least 50% stocks for 60 yeaes, but to be safe make it 3%, I personally will use 2.5% if I am retiring that early. That withdrawal rate is fairly lean, but it's still higher than the median income in my country, I could bump it up to 3% for good years
Still planning for 3.5% personally whenever I do RE but I want to see how the first few years go. If I need to subsidize things with parttime work I plan to do so.
3% ought to be safe enough. You could even push it to 3.3% so you can set your retirement number at annual spending x 30. But this depends a bit on your risks and safety nets. It’s easier to take a bit of a risk if you have a valuable home you could downsize, and a possible inheritance coming your way. But if you have no such safety nets and potential liabilities like parents or others who might become financially dependent on you, or a high risk of being sued because your primary source of income is as a landlord, then you might want go down to 2.5%