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It's a common misconception that inflation drags you down with these methods. The real question is will $40k/yr work (or the inflated equivalent) cover your lif

It's a common misconception that inflation drags you down with these methods. The real question is will $40k/yr work (or the inflated equivalent) cover your lifestyle. That's where major lifestyle adjustments you mentioned could matter. > ... If you have $1 million saved for retirement ... you could spend $40,000 in the first year of retirement following the 4% rule. > Beginning in year two of retirement, you adjust this amount by the rate of inflation. ... In year three, you’d take the prior year’s allowed withdrawal, and then adjust that amount for inflation. > One common misconception is that the 4% rule dictates that retirees withdraw 4% of their portfolio’s value each year during retirement. The 4% applies only in year one of retirement. After that inflation dictates the amount withdrawn. The goal is to maintain the purchasing power of the 4% withdrawn in the first year of retirement. https://www.forbes.com/advisor/retirement/four-percent-rule-retirement https://www.forbes.com/advisor/retirement/four-percent-rule-...

jacquesm 4y ago
Inflation reduces the purchasing power of your remaining savings with the same degree that it reduces the purchasing power of what you've already withdrawn. In other words: you'll be withdrawing more and more over time to keep up with the compound effect of inflation on your savings. And there is no law that says inflation should be between 0 and 3%, as the last couple of years have amply demonstrated.
- bushbaba 4y ago
  The idea is that if broader stock market returns 7% on average per year. Your 4% withdrawals include compounding inflationary adjustment without dipping into the capital (over many decades)
  - jacquesm 4y ago
    That's effectively 'timing the market' though. Because the broader stockmarket may well not realize those returns when you need them most. But sure, if you see having your funds in the stockmarket as risk free and guaranteeing you that 7% then you can base your retirement strategy on that. Savings = Cash in the bank Stocks = an asset class, so an investment, which has an ROI but also a risk (the ROI is effectively a risk premium) The bulk of the people that have this kind of money will have the majority of it in the form of home equity, not in the form of savings in the bank or stocks. Depending on where you live your first healthcare crisis can wipe out that million easily.
    - nighthawk454 4y ago
      GP is also not quite right. The point of the 4% rule is it's the historically maximum safe withdrawal rate. You're not assuming a 7% return here. You're assuming that there's not been a time ever where 4% wasn't indefinitely sustainable. https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-nee...

jacquesm 4y ago

Inflation reduces the purchasing power of your remaining savings with the same degree that it reduces the purchasing power of what you've already withdrawn. In other words: you'll be withdrawing more and more over time to keep up with the compound effect of inflation on your savings. And there is no law that says inflation should be between 0 and 3%, as the last couple of years have amply demonstrated.

bushbaba 4y ago
The idea is that if broader stock market returns 7% on average per year. Your 4% withdrawals include compounding inflationary adjustment without dipping into the capital (over many decades)
- jacquesm 4y ago
  That's effectively 'timing the market' though. Because the broader stockmarket may well not realize those returns when you need them most. But sure, if you see having your funds in the stockmarket as risk free and guaranteeing you that 7% then you can base your retirement strategy on that. Savings = Cash in the bank Stocks = an asset class, so an investment, which has an ROI but also a risk (the ROI is effectively a risk premium) The bulk of the people that have this kind of money will have the majority of it in the form of home equity, not in the form of savings in the bank or stocks. Depending on where you live your first healthcare crisis can wipe out that million easily.
  - nighthawk454 4y ago
    GP is also not quite right. The point of the 4% rule is it's the historically maximum safe withdrawal rate. You're not assuming a 7% return here. You're assuming that there's not been a time ever where 4% wasn't indefinitely sustainable. https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-nee...