Re:Tech workers who are engineering a mid-30s retirement
by compiler-guy on Monday April 23, 2018 @02:35PM
(#16906151)
The Trinity study's 4% "safe withdrawal rate" is actually a bit technical:
The amount you withdraw from your portfolio, in perpetuity is:
"4% of your portfolio's value on the day you retire, adjusting annually for inflation."
Say, on the day you retire, your portfolio's value is $100,000. For the next thirty years, you withdraw $4,000 annually (adjusted for inflation). You now have $96,000 in your portfolio.
Say the year after you retire, your portfolio has done supremely well, and doubled in value to $192,000, and inflation has been 0%. You get to withdraw: $4,000. You now have $188,000 in your porfoloio.
The next year, your portfolio tanks by 50%, and it is now worth $ $94,000 (and inflation is still 0%). You get to withdraw: $4,000. Your portfolio is now worth $90,000.
(There are additional rules about the composition of the portfolio too.)
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Historically, by following this rule, there has been no thirty-year period (since records of the US Stock market have been kept) where the portfolio would fail--where you wouldn't be able to withdraw your $4,000. And the vast majority of the time, you would end up with a very, very much larger value.
It is a fairly conservative system and keeps purchasing power constant, which is useful.
But it is only a starting point. If you will have a longer retirement, don't follow their composition rules, or don't need constant purchasing power (most retirees don't), then you should adjust it as appropriate.
The amount you withdraw from your portfolio, in perpetuity is:
"4% of your portfolio's value on the day you retire, adjusting annually for inflation."
Say, on the day you retire, your portfolio's value is $100,000. For the next thirty years, you withdraw $4,000 annually (adjusted for inflation). You now have $96,000 in your portfolio.
Say the year after you retire, your portfolio has done supremely well, and doubled in value to $192,000, and inflation has been 0%. You get to withdraw: $4,000. You now have $188,000 in your porfoloio.
The next year, your portfolio tanks by 50%, and it is now worth $ $94,000 (and inflation is still 0%). You get to withdraw: $4,000. Your portfolio is now worth $90,000.
(There are additional rules about the composition of the portfolio too.)
-----------
Historically, by following this rule, there has been no thirty-year period (since records of the US Stock market have been kept) where the portfolio would fail--where you wouldn't be able to withdraw your $4,000. And the vast majority of the time, you would end up with a very, very much larger value.
It is a fairly conservative system and keeps purchasing power constant, which is useful.
But it is only a starting point. If you will have a longer retirement, don't follow their composition rules, or don't need constant purchasing power (most retirees don't), then you should adjust it as appropriate.