5 ms·

That's using a 5 percent withdrawal rate. A 4 or even 3 percent withdrawal rate is more likely to be sustainable. Those are also rates I see suggested more com

That's using a 5 percent withdrawal rate. A 4 or even 3 percent withdrawal rate is more likely to be sustainable. Those are also rates I see suggested more commonly on retirement planning sites.

fnordpiglet 4y ago
You are assuming no compounding. You have to model it as an annuity.
- ghaff 4y ago
  If you're assuming withdrawing at a safe withdrawal rate you're assuming you're not compounding. You're assuming a safe withdrawal rate from principal/dividends/interest that will, on average, leave the principal constant. Of course, if you're older and are not looking to pass down money you may be fine with drawing down principal to some degree. So, yes, $2m should probably be modeled at about $80K income per year before taxes without touching principal but without building savings. (May be somewhat higher with higher interest rates/inflation.)
  - fnordpiglet 4y ago
    I said an annuity. An annuity would draw the principal down as well, and you generally make a drawdown assumption that leaves you with some safe margin for extended life and maybe some inheritance.
    - treewalking 4y ago
      If you model it as a lifetime annuity with inflation adjustment you are looking at more like 50k/year income at the outset were you to buy today. My understanding is that annuities provide in general a worse return than the so called 4% rule on average.
- brianwawok 4y ago
  You have compounding but also inflation. You need to slowly raise your draw to keep the same lifestyle.
- timerol 4y ago
  That is not accurate. The 4% withdrawal rate is based on the Trinity Study[1], which showed that it was unlikely to exhaust retirement funds over a 30 year retirement. It already includes compounding and draw down calculations. There's a whole active debate around exactly what numbers are sufficiently safe over what time horizons and what portfolio mixes. For a fun long read, see ERN's series on safe withdrawal rates https://earlyretirementnow.com/safe-withdrawal-rate-series/ https://earlyretirementnow.com/safe-withdrawal-rate-series/ [1]: https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study

That's using a 5 percent withdrawal rate. A 4 or even 3 percent withdrawal rate is more likely to be sustainable. Those are also rates I see suggested more commonly on retirement planning sites.

fnordpiglet 4y ago

You are assuming no compounding. You have to model it as an annuity.

ghaff 4y ago
If you're assuming withdrawing at a safe withdrawal rate you're assuming you're not compounding. You're assuming a safe withdrawal rate from principal/dividends/interest that will, on average, leave the principal constant. Of course, if you're older and are not looking to pass down money you may be fine with drawing down principal to some degree. So, yes, $2m should probably be modeled at about $80K income per year before taxes without touching principal but without building savings. (May be somewhat higher with higher interest rates/inflation.)
- fnordpiglet 4y ago
  I said an annuity. An annuity would draw the principal down as well, and you generally make a drawdown assumption that leaves you with some safe margin for extended life and maybe some inheritance.
  - treewalking 4y ago
    If you model it as a lifetime annuity with inflation adjustment you are looking at more like 50k/year income at the outset were you to buy today. My understanding is that annuities provide in general a worse return than the so called 4% rule on average.
brianwawok 4y ago
You have compounding but also inflation. You need to slowly raise your draw to keep the same lifestyle.
timerol 4y ago
That is not accurate. The 4% withdrawal rate is based on the Trinity Study[1], which showed that it was unlikely to exhaust retirement funds over a 30 year retirement. It already includes compounding and draw down calculations. There's a whole active debate around exactly what numbers are sufficiently safe over what time horizons and what portfolio mixes. For a fun long read, see ERN's series on safe withdrawal rates https://earlyretirementnow.com/safe-withdrawal-rate-series/ https://earlyretirementnow.com/safe-withdrawal-rate-series/ [1]: https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study