Still in the accumulation phase. But I have created a basket of income/dividend ideas.
The income target is on the higher side, but it is just some fraction of what I think I will need in retirement. The primary purpose of the basket is experience and/or practice. As a few example, 10 years from now, I don’t want to be asking
This is how I see it as well. The 4% rule is a clear, completely specified, mathematical fact about the past. I like these kinds of facts not necessarily because they are, by themselves, actionable but because they’re signposts, something I can hang on to, something to separate the known from the unknown. Beyond this, there be dragons.
“Rules” don’t talk about the past; They’re used to guide for the future. That’s why it’s named as a rule.
Now you’re saying it’s really a “signpost.” But, signposts are for what’s coming up ahead, not what we’ve already passed.
We can play semantics all you want, but the reality is the RULE is being applied as what’s SAFE for the future. Trying to weasel out of that is telling.
That’s why it’s the “4% rule” and not the “3.9% rule” or “4.2% rule”.
A lot of these “experts” predicting the future seem to believe that their certainty exceeds one significant digit.
Morningstar sets the 2026 safe withdrawal rate at 3.9% for 30 years
https://www.morningstar.com/retirement/whats-safe-retirement-withdrawal-rate-2026
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That’s actually an in-depth article covering a variety of options, explaining where that 3.9% number comes from, much of what it’s based on (predictions about the future), and includes alternate strategies, even saying:
In addition, new retirees don’t have to settle for such a low number—and arguably shouldn’t. Our research concluded that those who are willing to tolerate some fluctuations in their spending can start with a withdrawal rate of nearly 6%. The right level of flexibility in a retiree’s spending system will depend on the individual’s tolerance for spending changes, including the extent to which fixed expenses are covered by nonportfolio income sources.
and
So, thanks for that link.
I find that a concise summary of a sane outlook. Of course, all good advice being good depends on the recipient more than the sender.
And back to one of the earlier replies, the Morningstar link has a table with shorter/longer time horizons:
It’s worth remembering that “the past” for the period studied has been really different than what we’re used to in our lifetimes - even at our worst. You think 2008 was bad, trying getting through 12 years of absolute financial depression - the worst in the history of the country (1929-1941). And there was a World War (1941-1945), literally two theaters of war erupting at once, and more than a year of near constant losses before anything hopeful appeared.
We have had political instability with the removal of a President (Nixon), an OPEC oil embargo, and a losing war of attrition for a decade with Vietnam. We had an economic meltdown with the housing debacle of 2008, and other political and economic incidents throughout the period.
So it was a pretty volatile set of years, and yet 4% is the number that survived it all. That does not mean that 4% is some magic number that will survive the future, the sun going supernova, a nuclear holocaust, or whatever comes - just that if what is to come is remotely similar to the past, then it’s a guide , not a guarantee.
A fellow curmudgeon! I knew there was a reason I liked you.
Hang on, I’ll be right back. Got to yell at the neighbor’s kids to get off my lawn!!
And while we all agree it’s a number related to the past, it keeps getting used in a rule for the future - the “Safe Withdrawal Rate,” which is really the “Safe Initial Withdrawal Rate.” Which to me mostly says that if you can live on 4% of your portfolio right now (don’t forget to factor in taxes!!!), you can retire and have it last probably at least 30 years. And the table I pasted above shows the rates for various retirement lifetimes. But, to me anyway, this is just a go/no-go guide for IF you can retire, not an actual retirement withdrawal plan.
And what none of this shows, but is hugely important, is knowing how much you need to live on each month/year. One of the best things I did a dozen or so years ago was to build a small spreadsheet to keep track of my expenses each month (columns for months, rows for spending items). I was able to keep the number of rows manageable by literally using credit cards for everything they’d let me pay by credit card. I paid them off in full each month, so no fees and got some miles to boot. So, now I could just include the credit card bill each month and not worry about individual expenses.
On the spreadsheet, I keep not only running totals, but also 5 year running averages so I could spot trends. I know they say expenses in retirement are different than when you’re working, but I didn’t find them that much less - less car usage, less work clothes, counterbalanced by more dinners out and such. Knowing your monthly spend really gives you security about what you’ll need in retirement, and if you’re within a decade of when you think you might want to retire, I can’t recommend such a spreadsheet more highly. Don’t forget to spot things like paying off a mortgage during retirement, too, if you haven’t already.
But, some kind of adjusting/guardrails approach is what I think should actually be used to monitor withdrawals, at least assuming you’re not just barely scraping by at the 4% number.
I also look at how low the withdrawals can go in these variable withdrawal strategies. Some that tout high initial rates and variable withdrawals sweep this under the rug. Others do address this.
Even a very high constant percentage withdrawal can have a long survival rate. Suppose you take 10%. Maybe your portfolio drops to $100. The plan still survives, take $10 and go to town. The plan only fails when your portfolio becomes less than $0.10 as you can’t withdraw less than a penny.
More realistically, consider the Guyton-Klinger guardrail plan. AI says
Under the standard Guyton-Klinger (GK) model, retirees can face significant real-term income drops in the most challenging historical scenarios:
- Maximum Real Cut: Simulations of the worst historical periods (e.g., retiring in 1969 or 1973) show that real income can be cut by as much as 45% to 50% over the first decade.
- Duration of Low Spending: In these “worst-case” scenarios, real income can remain significantly below the starting amount for over a decade before recovering.
This, like the 4% rule, is just math and past data. What you do with that depends on your own situation and outlook. If you have a secure base of social security or a pension that covers most of your essentials, then a chance of a 50% cut in withdrawals is survivable and larger initial withdrawals can be very attractive. If a 50% cut leaves you homeless and hungry, then not so much.
That was my experience, which was a surprise after being told for 20 years that it would be “a lot less”. (Less commuting, fewer suits, less dry cleaning, blah blah blah). I’ve never put a spreadsheet to it, but I would guess our normal expenses are just about what they were during our working years - shifted some into hobby expenses, better food (both home prepared and restaurant), and so on. But then we have also looked at the Benjamins stacked up and decided on house upgrades, which were always too troublesome to do with a job, travel (ditto), and so on, so I would say our expenses are higher than before.
How much higher? I sort of wish I had kept track (but I hated that stuff) so I can’t say for sure, but at least 10%, maybe 20%. Some years 50%, depending on the project, travel, and so on.
I keep 4% in the back of my mind in case calamity strikes and I am reduced to buying generic instead of brand, or the other privations of life. For now, things are pretty good, politics aside.
Yes, they are.
Knock knock knock - on wood.
Not sure why I didn’t see this earlier, but am I correct in that table also shows that a 60/40 balanced portfolio also gives the highest possible survival rate as well? Seems like portfolios near that equity weighting have the highest withdraw rates in the table, generally.
The way I read it 20% - 50% equities gives the highest starting withdrawal rate then it degrades once you hit 60%. The chart specifies 90% survival rate though. I think planning with a 90% survival rate is financial planning on the same level as “I’ll dream of the things I’ll do, with a subway ticket and a dollar tucked inside my shoe.”
